Denny 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."
|
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 |
530 |
thousand square feet |
| Estimating and job setup |
Number of jobs |
200 |
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 |
$ |
200,000 |
| Disposal fees |
|
599,000 |
| Equipment depreciation |
|
47,000 |
| On-site supplies |
|
68,000 |
| Office expenses |
|
196,000 |
| Licensing and insurance |
|
363,000 |
|
|
|
| Total cost |
$ |
1,473,000 |
|
|
|
|
|
Distribution of Resource Consumption Across Activities
|
|
Removing Asbestos |
Estimating and Job Setup |
Working on Nonroutine Jobs |
Other |
Total |
| Wages and salaries |
39 |
% |
12 |
% |
32 |
% |
17 |
% |
100 |
% |
| Disposal fees |
71 |
% |
0 |
% |
29 |
% |
0 |
% |
100 |
% |
| Equipment depreciation |
40 |
% |
0 |
% |
31 |
% |
29 |
% |
100 |
% |
| On-site supplies |
45 |
% |
6 |
% |
16 |
% |
33 |
% |
100 |
% |
| Office expenses |
8 |
% |
31 |
% |
25 |
% |
36 |
% |
100 |
% |
| Licensing and insurance |
43 |
% |
0 |
% |
35 |
% |
22 |
% |
100 |
% |
|
| 1. |
Perform the first-stage allocation of costs to the activity cost pools. (enter "0" wherever required.)
|
|
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.) |
| 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.)
|
| 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 |
|