Denny asbestos removal company
Denny Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company’s estimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does 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 $4,000 per thousand square feet to determine the bid price. Since our average cost is only $3,000 per thousand square feet, 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 nonroutine 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 550 thousand square feet
Estimating and job setup Number of jobs 220 jobs*
Working on nonroutine jobs Number of nonroutine jobs 30 nonroutine jobs
Other (organization-sustaining
And idle capacity costs) None Not applicable
* The total number of jobs includes nonroutine jobs as well as routine jobs. Nonroutine jobs as well as routine jobs require estimating and setup work.
Costs for the Year
Wages and salaries $ 210,000
Disposal fees 595,000
Equipment depreciation 60,000
On-site supplies 58,000
Office expenses 200,000
Licensing and insurance 378,000
Total cost $ 1,501,000
Distribution of Resource Consumption Across Activities
Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total
Wages and salaries 33 % 7 % 25 % 35 % 100 %
Disposal fees 67 % 0 % 33 % 0 % 100 %
Equipment depreciation 50 % 0 % 36 % 14 % 100 %
On-site supplies 46 % 13 % 24 % 17 % 100 %
Office expenses 6 % 31 % 25 % 38 % 100 %
Licensing and insurance 42 % 0 % 37 % 21 % 100 %
Required:
1.
Perform the first-stage allocation of costs to the activity cost pools. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
Removing
Asbestos Estimating and
Job Setup Working on
Nonroutine Jobs Other Total
Wages and salaries $ $ $ $ $
Disposal fees
Equipment depreciation
On-site supplies
Office expenses
Licensing and insurance
Total cost $ $ $ $ $
2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Activity Cost Pool Activity Rate
Removing asbestos $ per thousand square feet
Estimating and job setup $ per job
Working on nonroutine jobs $ per nonroutine job
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 your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)
a. A routine 2,000-square-foot asbestos removal job.
Total cost of the job $
Average cost per thousand square feet $
b. A routine 4,000-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 $
