Problem 7-18 Activity-Based Costing and Bidding on Jobs [LO7-2, LO7-3, LO7-4] Me
ID: 2401485 • Letter: P
Question
Problem 7-18 Activity-Based Costing and Bidding on Jobs [LO7-2, LO7-3, LO7-4] Mercer Asbestos Removal Company removes potenbally toxic asbestos insulation and related products trom 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 bebweern routine work such as removal of asbestos insulation around heaing pipes in older homes and nonrouine work such as removing a supervisor customer charges. cleared of asbestos. As directed by top management, I simply multiply the square footage by $2 50 to determine the bid price. Since our average cost is only $2 175 per square foot, that loaves enough cushion to take care of the addtional costs of nonroutine work that shows up. Besides, it is difficuit to know what is routine or not rouäne untl you actually start bearing things apart ted celing plaster in industrial buildings. The on-site s belileve that nonsoutine work is far more expensive than routine work and should bear higher The estimator sums up his position in this way: "My job is to measune the area to be 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 tollow Activity Cost Pool Removing asbestos Estimating and job setup Werking on nonroutine jobs Other (oosts of idle capacity and Activity Measure Thousands of square feet Number of jobs Number of norouine jobs 800 thousand square feet 500 jobs 100 nonroutine jobs costs) None Note: The 100 nonroutine jobs are included in the total of 500 jobs Both nonroutine jobs and routine jobs equire estmating and setup. Costs for the Year Wages and salaries Disposal fees 300,000 On-site supplies Office expenses Licensing and insurance 700,000 90,000 0,000 200,000 400,000 Total cost s 1,740,000 Estmating Working on Removing and Job Nonroutine 3 5Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 3. Routine 1000 Sq Fee Job Per Activity Total Working Removing Absestos 970 970000 970*1000 Set Up 239 239 Total 970239 Average Cost 970239/1000 970.24 4. Routine 2000 Sq Fee Job Per Activity Total Working Removing Absestos 970 1940000 970*2000 Set Up 239 239 Total 1940239 Average Cost 1940239/2000 970.12 5. Non Routine 2000 Sq Fee Job Per Activity Total Working Removing Absestos 970 1940000 970*2000 Set Up 239 239 Working on Non Routine 6430 6430 Total 1946669 Average Cost 1946669/2000 973.33