Chapter 6-4 Mercer Asbestos Removal Company removes potentially toxicasbestos insulation and related products from buildings. There hasbeen a long-simmering dispute between the company’s estimator andthe work supervisors. The on-site supervisors claim that theestimators do not adequately distinguish between routine work suchas removal of asbestos insulation around heating pipes in olderhomes and nonroutine work such as removing asbestos-contaminatedceiling plaster in industrial buildings. The on-site supervisorsbelieve that nonroutine work is far more expensive than routinework and should bear higher customer charges. The estimator sums uphis position in this way: “My job is to measure the area to becleared of asbestos. As directed by top management, I simplymultiply the square footage by $2.70 to determine the bid price.Since our average cost is only $2.40 per square foot, that leavesenough cushion to take care of the additional costs of nonroutinework that shows up. Besides, it is difficult to know what isroutine or not routine until you actually start tearing thingsapart.” To shed light on this controversy, the company initiated anactivity-based costing study of all of its costs. Data from theactivity-based costing system follow: Note: The 100 nonroutine jobs are included in the total of 500jobs. Both nonroutine jobs and routine jobs require estimating andsetup. Distribution of Resource Consumption Across Activities Required: 1. Perform the first-stage allocation of costs to the activitycost pools. RemovingEstimating andWorking onAsbestosJob SetupNonroutineJobsOtherTotalWages and salariesDisposal feesEquipmentdepreciationOn-site suppliesOffice expensesLicensing andinsuranceTotal cost 2.Compute the activity rates for the activity cost pools. Activity Cost PoolActivity RateRemoving asbestosper thousandsquare feetEstimating and job setupper jobWorking on nonroutinejobsper nonroutine job 3. Using the activity rates you have computed, determine the totalcost and the average cost per thousand square feet of each of thefollowing 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. b. A routine 2,000-square-foot asbestos removal job. c. Anonroutine 2,000-square-foot asbestos removal job. Attached
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