CR Black has supplied the following data for use in its activity based costing system:
Overhead Costs:
Wages and Salaries $ 700,000 Other Overhead Costs $ 400,000 Total Overhead Costs $1,100,000
Activity Cost Pool:
Direct Labor Support
Order Processing
Customer Support
Other
Activity Measure:
Number of direct labor-hours
Number of orders
Number of Customers
This is an organizationSustaining activity
Total Activity:
10,000 DLHs
500 Orders
100 customers
Not applicable
Selling Price $700 per unit Units Ordered 100 units Direct materials $350 per unit Direct labor-hours (DLH) 0.5 DLH per unit Direct labor rate $25 per DLH
Distribution of Resource Consumption across Activities
|
Direct Labor Support |
Order processing | Costomer Support | Other | Total | |
| Wages and Salaries | 30% | 35% | 25% | 10% | 100% |
| Other Overhead Costs | 25% | 15% | 20% | 40% | 100% |
During the year, CR Black completed an order for a special optical switch for a new customer, Gucwa Telecom. The customer did not order any other products during the year. Data concerning that order follow:
Data concerning the Calandra Telecom Order
| Selling Price | $700 per unit |
| Units Ordered | 100 units |
| Direct Materials | $350 per unit |
| Direct Labor-hours (DLH) | 0.5 DLH |
| Direct labor rate | $25 per DLH |
5) Prepare a report showing the overhead costs for the order from Calandra, including customer support costs, and prepare a report showing the customer margin for Calandra Telecom.
Please show all work!!
In: Accounting
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 $2.305 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 800 | thousand square feet |
| Estimating and job setup | Number of jobs | 400 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. | |||
| Costs for the Year | ||
| Wages and salaries | $ | 332,000 |
| Disposal fees | 740,000 | |
| Equipment depreciation | 90,000 | |
| On-site supplies | 54,000 | |
| Office expenses | 240,000 | |
| Licensing and insurance | 440,000 | |
| Total cost | $ | 1,896,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine 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 | % | 25 | % | 15 | % | 0 | % | 100 | % | ||||||
| Office expenses | 10 | % | 40 | % | 15 | % | 35 | % | 100 | % | ||||||
| Licensing and insurance | 25 | % | 0 | % | 60 | % | 15 | % | 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. 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.
In: Accounting
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 $2.60 to determine the bid price. Since our average cost is only $2.35 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 1,000 | thousand square feet |
| Estimating and job setup | Number of jobs | 500 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| 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 | $ | 402,000 |
| Disposal fees | 737,000 | |
| Equipment depreciation | 104,000 | |
| On-site supplies | 64,000 | |
| Office expenses | 330,000 | |
| Licensing and insurance | 460,000 | |
| Total cost | $ | 2,097,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 50 | % | 15 | % | 20 | % | 15 | % | 100 | % | ||||||
| Disposal fees | 60 | % | 0 | % | 40 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 50 | % | 10 | % | 15 | % | 25 | % | 100 | % | ||||||
| On-site supplies | 70 | % | 20 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 10 | % | 35 | % | 25 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 30 | % | 0 | % | 50 | % | 20 | % | 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. 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.
In: Accounting
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 $2.70 to determine the bid price. Since our average cost is only $2.405 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 800 | thousand square feet |
| Estimating and job setup | Number of jobs | 500 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| 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 | $ | 323,000 |
| Disposal fees | 759,000 | |
| Equipment depreciation | 90,000 | |
| On-site supplies | 56,000 | |
| Office expenses | 250,000 | |
| Licensing and insurance | 450,000 | |
| Total cost | $ | 1,928,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 60 | % | 10 | % | 20 | % | 10 | % | 100 | % | ||||||
| Disposal fees | 60 | % | 0 | % | 40 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 40 | % | 5 | % | 20 | % | 35 | % | 100 | % | ||||||
| On-site supplies | 70 | % | 20 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 15 | % | 35 | % | 20 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 25 | % | 0 | % | 60 | % | 15 | % | 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. 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.
In: Accounting
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 $2.50 to determine the bid price. Since our average cost is only $2.01 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 850 | thousand square feet |
| Estimating and job setup | Number of jobs | 400 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. | |||
| Costs for the Year | ||
| Wages and salaries | $ | 308,000 |
| Disposal fees | 706,000 | |
| Equipment depreciation | 90,000 | |
| On-site supplies | 50,000 | |
| Office expenses | 210,000 | |
| Licensing and insurance | 410,000 | |
| Total cost | $ | 1,774,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 60 | % | 10 | % | 20 | % | 10 | % | 100 | % | ||||||
| Disposal fees | 70 | % | 0 | % | 30 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 40 | % | 5 | % | 25 | % | 30 | % | 100 | % | ||||||
| On-site supplies | 70 | % | 20 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 15 | % | 35 | % | 20 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 25 | % | 0 | % | 50 | % | 25 | % | 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. 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.
In: Accounting
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 $3.00 to determine the bid price. Since our average cost is only $2.755 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 800 | thousand square feet |
| Estimating and job setup | Number of jobs | 400 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. | |||
| Costs for the Year | ||
| Wages and salaries | $ | 420,000 |
| Disposal fees | 814,000 | |
| Equipment depreciation | 96,000 | |
| On-site supplies | 62,000 | |
| Office expenses | 320,000 | |
| Licensing and insurance | 520,000 | |
| Total cost | $ | 2,232,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 50 | % | 15 | % | 20 | % | 15 | % | 100 | % | ||||||
| Disposal fees | 60 | % | 0 | % | 40 | % | 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 | 25 | % | 0 | % | 60 | % | 15 | % | 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. 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.
In: Accounting
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 $2.50 to determine the bid price. Since our average cost is only $2.175 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 800 | thousand square feet |
| Estimating and job setup | Number of jobs | 500 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| 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 | $ | 300,000 |
| Disposal fees | 700,000 | |
| Equipment depreciation | 90,000 | |
| On-site supplies | 50,000 | |
| Office expenses | 200,000 | |
| Licensing and insurance | 400,000 | |
| Total cost | $ | 1,740,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 50 | % | 10 | % | 30 | % | 10 | % | 100 | % | ||||||
| Disposal fees | 60 | % | 0 | % | 40 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 40 | % | 5 | % | 20 | % | 35 | % | 100 | % | ||||||
| On-site supplies | 60 | % | 30 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 10 | % | 35 | % | 25 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 30 | % | 0 | % | 50 | % | 20 | % | 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. 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.
In: Accounting
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 $2.575 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 800 | thousand square feet |
| Estimating and job setup | Number of jobs | 400 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. | |||
| Costs for the Year | ||
| Wages and salaries | $ | 372,000 |
| Disposal fees | 775,000 | |
| Equipment depreciation | 96,000 | |
| On-site supplies | 58,000 | |
| Office expenses | 280,000 | |
| Licensing and insurance | 480,000 | |
| Total cost | $ | 2,061,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 60 | % | 10 | % | 20 | % | 10 | % | 100 | % | ||||||
| Disposal fees | 60 | % | 0 | % | 40 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 50 | % | 10 | % | 15 | % | 25 | % | 100 | % | ||||||
| On-site supplies | 70 | % | 20 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 10 | % | 40 | % | 20 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 25 | % | 0 | % | 60 | % | 15 | % | 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. 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.
In: Accounting
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 $3.60 to determine the bid price. Since our average cost is only $2.845 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 750 | thousand square feet |
| Estimating and job setup | Number of jobs | 400 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. | |||
| Costs for the Year | ||
| Wages and salaries | $ | 460,000 |
| Disposal fees | 862,000 | |
| Equipment depreciation | 104,000 | |
| On-site supplies | 66,000 | |
| Office expenses | 360,000 | |
| Licensing and insurance | 560,000 | |
| Total cost | $ | 2,412,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 50 | % | 15 | % | 20 | % | 15 | % | 100 | % | ||||||
| Disposal fees | 70 | % | 0 | % | 30 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 50 | % | 10 | % | 15 | % | 25 | % | 100 | % | ||||||
| On-site supplies | 60 | % | 30 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 15 | % | 35 | % | 20 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 25 | % | 0 | % | 60 | % | 15 | % | 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. 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.
In: Accounting
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 $2.50 to determine the bid price. Since our average cost is only $2.175 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 | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square feet | 800 | thousand square feet |
| Estimating and job setup | Number of jobs | 500 | jobs |
| Working on nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | ||
| 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 | $ | 300,000 |
| Disposal fees | 700,000 | |
| Equipment depreciation | 90,000 | |
| On-site supplies | 50,000 | |
| Office expenses | 200,000 | |
| Licensing and insurance | 400,000 | |
| Total cost | $ | 1,740,000 |
| Distribution of Resource Consumption Across Activities | ||||||||||||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||||||||
| Wages and salaries | 50 | % | 10 | % | 30 | % | 10 | % | 100 | % | ||||||
| Disposal fees | 60 | % | 0 | % | 40 | % | 0 | % | 100 | % | ||||||
| Equipment depreciation | 40 | % | 5 | % | 20 | % | 35 | % | 100 | % | ||||||
| On-site supplies | 60 | % | 30 | % | 10 | % | 0 | % | 100 | % | ||||||
| Office expenses | 10 | % | 35 | % | 25 | % | 30 | % | 100 | % | ||||||
| Licensing and insurance | 30 | % | 0 | % | 50 | % | 20 | % | 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. 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.
In: Accounting