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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. (Round the "Average cost" to 2decimal places.)a. A routine 1,000-square-foot asbestos removal job.Answer is complete but not entirely correct.1,334 XTotal cost of the jobAverage cost per thousand squarefeetX1,333.88b. A routine 2,000-square-foot asbestos removal job.Answer is complete but not entirely correct.Total cost of the job2.668Average cost per thousand squarefeet$1,333.88c. A nonroutine 2,000-square-foot asbestos removal job.Answer is complete but not entirely correct.$ 9,768Total cost of the jobAverage cost per thousand squarefeetX4,884.00

Question

I am resubmitting this as the guidance I received for question 3. A/B/C is incorrect. 

 

 

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 $2.58 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 squarefeet
Estimating and job setup Number of jobs   400   jobs
Working on nonroutine jobs Number of nonroutine jobs   100   nonroutine jobs
Other (costs of idle capacity and
organization-sustaining 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 $ 400,000  
Disposal fees   791,000  
Equipment depreciation   96,000  
On-site supplies   60,000  
Office expenses   300,000  
Licensing and insurance   500,000  
Total cost $ 2,147,000  

 

 

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 %     25 %     30 %       100 %
On-site supplies   60 %     25 %     15 %     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(Round the "Average cost" to 2 decimal places.)

 

a. A routine 1,000-square-foot asbestos removal job.

 
 
   
Total cost of the job $
Average cost per thousand square feet $

 

 


b. A routine 2,000-square-foot asbestos removal job.

 
 
   
Total cost of the job $
Average cost per thousand square feet $

 

 

c. A nonroutine 2,000-square-foot asbestos removal job.

 
 
   
Total cost of the job $
Average cost per thousand square feet $

 

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. (Round the "Average cost" to 2
decimal places.)
a. A routine 1,000-square-foot asbestos removal job.
Answer is complete but not entirely correct.
1,334 X
Total cost of the job
Average cost per thousand square
feet
X
1,333.88
b. A routine 2,000-square-foot asbestos removal job.
Answer is complete but not entirely correct.
Total cost of the job
2.668
Average cost per thousand square
feet
$
1,333.88
c. A nonroutine 2,000-square-foot asbestos removal job.
Answer is complete but not entirely correct.
$ 9,768
Total cost of the job
Average cost per thousand square
feet
X
4,884.00
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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. (Round the "Average cost" to 2 decimal places.) a. A routine 1,000-square-foot asbestos removal job. Answer is complete but not entirely correct. 1,334 X Total cost of the job Average cost per thousand square feet X 1,333.88 b. A routine 2,000-square-foot asbestos removal job. Answer is complete but not entirely correct. Total cost of the job 2.668 Average cost per thousand square feet $ 1,333.88 c. A nonroutine 2,000-square-foot asbestos removal job. Answer is complete but not entirely correct. $ 9,768 Total cost of the job Average cost per thousand square feet X 4,884.00

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check_circleAnswer
Step 1

1.

Perform the first-stage allocation of costs to the activity cost pools as follows:

Estimation Non routine
Removing
Total
asbestos (a)and job set
up (b)
Others (d)
Particulars
jobs (c)
(a+b+c+d)
$ 240,000
Wages and salaries
| Disposal fees
Depreciation on equipment
On-site suppliers
Office expenses
Licensing anfinsurance
$ 400,000
$ 791,000
96,000
$ 60,000
$ 300,000
$ 500,000
S 2,147,000
40000
80000
40000
$ 474,600
0
316400
0
$38,400
28800
4800
24000
36,000
15000
9000
0
$ 30,000
105000
75000
90000
250000
100000
150,000
S 969,000
0
Total
164,800
754,400
258,800
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Estimation Non routine Removing Total asbestos (a)and job set up (b) Others (d) Particulars jobs (c) (a+b+c+d) $ 240,000 Wages and salaries | Disposal fees Depreciation on equipment On-site suppliers Office expenses Licensing anfinsurance $ 400,000 $ 791,000 96,000 $ 60,000 $ 300,000 $ 500,000 S 2,147,000 40000 80000 40000 $ 474,600 0 316400 0 $38,400 28800 4800 24000 36,000 15000 9000 0 $ 30,000 105000 75000 90000 250000 100000 150,000 S 969,000 0 Total 164,800 754,400 258,800

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Step 2

Workings:

% of
RemovingRemoving% of Estimation Estimation
and job set upand job set
Costs
Particulars
asbestos
(given (a)
a sbestos
(axb)
(c)
up (axc)
(b)
Wages and salaries
Disposal fees
Depreciation on equipment
On-site suppliers
Office expenses
Licensing anfinsurance
Total
S 40,000
$ 0
$ 400,000
$240,000
60%
10%
$ 791,000
$ 474,600
60%
0%
40%
$96,000
38,400
5%
$4,800
60%
S 36,000
$30,000
$150,000
S969,000
S 15,000
$ 60,000
25%
$300,000
$500,000
$105,000
10%
35%
0
30%
0%
S 2,147,000
S 164,800
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% of RemovingRemoving% of Estimation Estimation and job set upand job set Costs Particulars asbestos (given (a) a sbestos (axb) (c) up (axc) (b) Wages and salaries Disposal fees Depreciation on equipment On-site suppliers Office expenses Licensing anfinsurance Total S 40,000 $ 0 $ 400,000 $240,000 60% 10% $ 791,000 $ 474,600 60% 0% 40% $96,000 38,400 5% $4,800 60% S 36,000 $30,000 $150,000 S969,000 S 15,000 $ 60,000 25% $300,000 $500,000 $105,000 10% 35% 0 30% 0% S 2,147,000 S 164,800

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Step 3

Workings:

...
% of Nol Non-routine % of other total
routine jobsjobs (axb)
Costs
Others (axc)
Particulars
(given (a)
(c)
(b)
20%
Wages and salaries
| Disposal fees
Depreciation on equipment
On-site suppliers
Office expenses
Licensing anfinsurance
Total
S 400,000
$ 80,000
$ 316,400
$24,000
$ 9,000
$ 75,000
$250,000
S 754,400
$ 40,000
10%
0%
791,000
40%
$ 28,800
$ 0
$90,000
$ 100,000
S 258,800
96,000
25%
30%
$60,000
15%
0%
300,000
$500,000
30%
25%
20%
50%
S 2,147,000
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% of Nol Non-routine % of other total routine jobsjobs (axb) Costs Others (axc) Particulars (given (a) (c) (b) 20% Wages and salaries | Disposal fees Depreciation on equipment On-site suppliers Office expenses Licensing anfinsurance Total S 400,000 $ 80,000 $ 316,400 $24,000 $ 9,000 $ 75,000 $250,000 S 754,400 $ 40,000 10% 0% 791,000 40% $ 28,800 $ 0 $90,000 $ 100,000 S 258,800 96,000 25% 30% $60,000 15% 0% 300,000 $500,000 30% 25% 20% 50% S 2,147,000

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