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In: Accounting

Chapter 7 - problem 18 Activity cost Pool                                   &nbs

Chapter 7 - problem 18

Activity cost Pool                                         Activity Measure                       Total Activity

Removing asbestos ………………. Thousands of square feet              800 thousand square feet

Equipment and job steps…………. Number of jobs                              500 jobs

Working on nonroutine jobs………. Number of jobs nonroutine jobs    100 nonroutine jobs                   

Other organization-sustaining costs and idle capacity costs …………… None

Note The 100 nonrountine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and steps.

Cots for the Year

Wages and salaries ……………………………………………… $300,000

Disposal fees ……………………………………………………… 700,000

Equipment depreciation …………………………………………. 90,000

One-site suppliers ………………………………………………… 50,000

Office expenses …………………………………………………… 200,000

License and insurance ……………………………………………. 400,000

Total cost …………………………………………………………… 51,740,000

Distribution of Resource Consumption across Activities

                                                                      Estimating               Working on

                                             Removing         and job steps          Nonroutine jobs        

                                               Asbestos                                                                  other   Total

Wages and salaries                  50%                10%                    30%                     10%    100%

Disposal fees                            60%                 0%                     40%                      0%      100%

Equipment depreciation           40%                  5%                     20%                      35%    100%

One-site suppliers                   60%                 30%                   10%                       0%      100%

Office expenses                       10%                 35%                    25%                      30%    100%

License and insurance             30%                 0%                     50%                      20%     100%

Require

  1. Using Exhibit 7-6 as a guide, perform the first-stage allocation of costs to the activity cost pools.
  2. Using Exhibit 7-7 as a guide, 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.
  1. A routine 1.000-square-foot asbestos removal job.
  2. A routine 2.000-square-foot asbestos removal job
  3. A nonroutine 2 000-square-foot asbestos removal job.
  1. Given the results you obtained in (3) above, do you agree with the estimator that the company's present policy for bidding on jobs is adequate?

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