more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: "My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Because our average cost is only $2.575 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart." To shed light on this controversy, the company gathered the following activity-based costing data: Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining costs and idle capacity costs) Costs for the Year Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance. Total cost Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Wages and salaries Disposal fees Equipment depreciation On-site supplies $ 372,000 775,000 96,000 Office expenses Licensing and insurance. 58,000 280,000 480,000 $ 2,061,000 Distribution of Resource Consumption Across Activities Estimating Working on Non routine and Job Setup Jobs 10% 20% 0% 40% 10% 20% 40% 0% Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs None Removing Asbestos 60% 60% 50% 70% 10% 25% 15% 10% 20% 60% Other 10% 0% 25% 0% 30% 15% Complete this question by entering your answers in the tabs below. Total Activity 800 thousand square feet 400 jobs 100 nonroutine jobs Total 100% 100% 100% 100% 100% 100% Required: 1. Perform the first-stage allocation of costs to the activity cost pools. 2. Compute the activity rates for the activity cost pools. 3. Calculate the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. a. A routine 1,000-square-foot asbestos removal job. b. A routine 2,000-square-foot asbestos removal job. c. A nonroutine 2,000-square-foot asbestos removal job.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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answer in text form please (without image)
Mercer Asbestos Removal Company removes potentially toxic asbestos insulation from buildings. There has been a long-simmering
dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately
distinguish between routine work, such as removing asbestos insulation around heating pipes in older homes, and nonroutine work,
such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe nonroutine work is far
more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: "My job is
to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to
determine the bid price. Because our average cost is only $2.575 per square foot, that leaves enough cushion to take care of the
additional costs of nonroutine work. Besides, it is difficult to know what is routine or not routine until you actually start tearing things
apart."
To shed light on this controversy, the company gathered the following activity-based costing data:
Activity Cost Pool
Removing asbestos.
Estimating and job setup
Working on nonroutine jobs.
Other (organization-sustaining costs and idle
capacity costs)
Costs for the Year
Wages and salaries.
Disposal fees
Equipment depreciation
On-site supplies
Office expenses
Licensing and insurance
Total cost
Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and
setup.
Wages and salaries.
Disposal fees
Equipment depreciation
On-site supplies
Office expenses
Licensing and insurance
Required 1
Distribution of Resource Consumption Across Activities
Estimating Working on
and Job Non routine
Jobs
20%
40%
15%
10%
20%
60%
$ 372,000
775,000
96,000
58,000
280,000
480,000
$ 2,061,000
Required 2
Removing
Asbestos
Wages and salaries
Disposal fees
Equipment depreciation
On-site supplies
Office expenses
Licensing and insurance.
Total cost
60%
60%
50%
70%
10%
25%
$
Complete this question by entering your answers in the tabs below.
Required 3A to
3C
Setup
10%
0%
10%
20%
Activity Measure
Thousands of square feet
Number of jobs
Number of non routine jobs
40%
0%
None
Removing
asbestos
Perform the first-stage allocation of costs to the activity cost pools.
Required:
1. Perform the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools.
3. Calculate the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based
costing system.
a. A routine 1,000-square-foot asbestos removal job.
b. A routine 2,000-square-foot asbestos removal job.
c. A nonroutine 2,000-square-foot asbestos removal job.
0 $
Estimating and
Job Setup
< Required 1
Other
10%
0%
25%
0%
0 $
30%
15%
Working on
Nonroutine
Jobs
Total
100%
100%
0 $
100%
100%
100%
100%
Required 2 >
Total Activity
800 thousand square feet
400 jobs
100 nonroutine jobs
Other
$
0 $
Total
0
0
0
0
0
0
0
Transcribed Image Text:Mercer Asbestos Removal Company removes potentially toxic asbestos insulation from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately distinguish between routine work, such as removing asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: "My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Because our average cost is only $2.575 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart." To shed light on this controversy, the company gathered the following activity-based costing data: Activity Cost Pool Removing asbestos. Estimating and job setup Working on nonroutine jobs. Other (organization-sustaining costs and idle capacity costs) Costs for the Year Wages and salaries. Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Wages and salaries. Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Required 1 Distribution of Resource Consumption Across Activities Estimating Working on and Job Non routine Jobs 20% 40% 15% 10% 20% 60% $ 372,000 775,000 96,000 58,000 280,000 480,000 $ 2,061,000 Required 2 Removing Asbestos Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance. Total cost 60% 60% 50% 70% 10% 25% $ Complete this question by entering your answers in the tabs below. Required 3A to 3C Setup 10% 0% 10% 20% Activity Measure Thousands of square feet Number of jobs Number of non routine jobs 40% 0% None Removing asbestos Perform the first-stage allocation of costs to the activity cost pools. Required: 1. Perform the first-stage allocation of costs to the activity cost pools. 2. Compute the activity rates for the activity cost pools. 3. Calculate the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. a. A routine 1,000-square-foot asbestos removal job. b. A routine 2,000-square-foot asbestos removal job. c. A nonroutine 2,000-square-foot asbestos removal job. 0 $ Estimating and Job Setup < Required 1 Other 10% 0% 25% 0% 0 $ 30% 15% Working on Nonroutine Jobs Total 100% 100% 0 $ 100% 100% 100% 100% Required 2 > Total Activity 800 thousand square feet 400 jobs 100 nonroutine jobs Other $ 0 $ Total 0 0 0 0 0 0 0
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