Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has...
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Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of 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 that 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. Since our average cost is only $2.315 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. 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 initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow: Activity Cost Pool Removing asbestos Estimating and job setup Other (organization-sustaining costs Working on nonroutine jobs and idle capacity costs) Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs None Total Activity 800 thousand square feet 500 jobs 100 nonroutine jobs Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Costs for the Year Wages and salaries $ 360,000 Disposal fees 765,000 Equipment depreciation 98,000 On-site supplies Office expenses Licensing and insurance Total cost 57,000 270,000 470,000 $ 2,020,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Other Total Wages and salaries 50% 10% 30% 10% 100% Disposal fees 70% 0% 30% 0% 100% Equipment depreciation 40% 5% 20% 35% 100% On-site supplies 60% 30% 10% 0% 100% Office expenses 15% 35% 20% 30% 100% Licensing and insurance 30% 0% 50% 20% 100% Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost Removing asbestos $ 180,000 $ 36,000 $ Estimating and Job Setup Working on Nonroutine Other Total Jobs 108,000 $ 36,000 $ 360,000 535,500 0 229,500 0 765,000 39,200 4,900 19,600 34,300 98,000 34,200 17,100 5,700 0 57,000 40,500 94,500 54,000 81,000 270,000 141,000 0 235,000 94,000 470,000 EA $ 970,400 $ 152,500 $ 651,800 $ 245,300 $ 2,020,000 2. Compute the activity rates for the activity cost pools. 3. Using the activity rates you have computed, determine 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. Compute the activity rates for the activity cost pools. Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Activity Rate per thousand square feet per job per nonroutine job Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. (Round the "Average Cost per thousand square feet" to 2 decimal places.) 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. Total cost of the job Average Cost per thousand square feet Routine 1,000 sq. ft. job Routine 2,000 sq. ft. job Nonroutine 2,000 sq. ft. job Show less Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of 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 that 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. Since our average cost is only $2.315 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. 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 initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow: Activity Cost Pool Removing asbestos Estimating and job setup Other (organization-sustaining costs Working on nonroutine jobs and idle capacity costs) Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs None Total Activity 800 thousand square feet 500 jobs 100 nonroutine jobs Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Costs for the Year Wages and salaries $ 360,000 Disposal fees 765,000 Equipment depreciation 98,000 On-site supplies Office expenses Licensing and insurance Total cost 57,000 270,000 470,000 $ 2,020,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Other Total Wages and salaries 50% 10% 30% 10% 100% Disposal fees 70% 0% 30% 0% 100% Equipment depreciation 40% 5% 20% 35% 100% On-site supplies 60% 30% 10% 0% 100% Office expenses 15% 35% 20% 30% 100% Licensing and insurance 30% 0% 50% 20% 100% Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost Removing asbestos $ 180,000 $ 36,000 $ Estimating and Job Setup Working on Nonroutine Other Total Jobs 108,000 $ 36,000 $ 360,000 535,500 0 229,500 0 765,000 39,200 4,900 19,600 34,300 98,000 34,200 17,100 5,700 0 57,000 40,500 94,500 54,000 81,000 270,000 141,000 0 235,000 94,000 470,000 EA $ 970,400 $ 152,500 $ 651,800 $ 245,300 $ 2,020,000 2. Compute the activity rates for the activity cost pools. 3. Using the activity rates you have computed, determine 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. Compute the activity rates for the activity cost pools. Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Activity Rate per thousand square feet per job per nonroutine job Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system. (Round the "Average Cost per thousand square feet" to 2 decimal places.) 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. Total cost of the job Average Cost per thousand square feet Routine 1,000 sq. ft. job Routine 2,000 sq. ft. job Nonroutine 2,000 sq. ft. job Show less
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Answer To shed light on the controversy between the estimator and the work supervisors at Mercer Asbestos Removal Company we can use the activitybased ... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
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