Mercer Asbestos Removal Company removes potentially toxic asbestos Insulation from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately distinguish between routine work, such as removing asbestos Insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated celling plaster In Industrial buildings. The on-site supervisors belleve 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. Because our average cost is only $2.405 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. 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 gathered the following activity-based costing data: Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining costs and idle capacity costs) Costs for the Year Wages and salaries Disposal fees Equipment depreciation Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and setup. On-site supplies Office expenses Licensing and insurance Total cost $ 323,000 759,000 Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance 90,000 56,000 250,000 450,000 $ 1,928,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing Asbestos 60% 60% 40% 70% 15% 25% Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs None and Job Nonroutine Jobs 20% 40% Setup 10% 0% 5% 20% 35% 0% 20% 10% 20% 60% Other 10% 0% 35% 0% 30% 15% Total 100% 100% 100% 100% Total Activity 800 thousand square feet see jobs 100 nonroutine jobs 100% 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. Calculate 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.

Mercer Asbestos Removal Company removes potentially toxic asbestos Insulation from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately distinguish between routine work, such as removing asbestos Insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated celling plaster In Industrial buildings. The on-site supervisors belleve 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. Because our average cost is only $2.405 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. 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 gathered the following activity-based costing data: Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining costs and idle capacity costs) Costs for the Year Wages and salaries Disposal fees Equipment depreciation Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and setup. On-site supplies Office expenses Licensing and insurance Total cost $ 323,000 759,000 Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance 90,000 56,000 250,000 450,000 $ 1,928,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing Asbestos 60% 60% 40% 70% 15% 25% Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs None and Job Nonroutine Jobs 20% 40% Setup 10% 0% 5% 20% 35% 0% 20% 10% 20% 60% Other 10% 0% 35% 0% 30% 15% Total 100% 100% 100% 100% Total Activity 800 thousand square feet see jobs 100 nonroutine jobs 100% 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. Calculate 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.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter14: Quality And Environmental Cost Management

Section: Chapter Questions

Problem 28E: Environmental costs are those costs incurred because poor environmental quality exists or may exist....

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