Problem 7-20 Activity-Based Costing and Bidding on Jobs [LO2, LO3] Vance 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 non-routine work, such as removing asbestos contaminated celling plaster in industrial buildings. The on-site supervisors believe that non-routine 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 metres by $4,700 per thousand square metres to determine the bid price. Since our average cost is only $3,700 per thousand square metres, that leaves enough cushion to take care of the additional costs of non-routine work that shows up. 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 Initiated an ABC study of all of us costs. Data from the ABC system follow Activity Cost Pool Activity Measure Totol Activity Removing asbestos Thousands of square metres Estimating and job setup Number of Jobs 210 jobs Working on non-routine jobs Number of non-routine Jobs 26 non-routine jobs Other (casts of idle capacity and Not applicable; these costs are not organization-sustaining costs) llocated to jobs. 500,000 2 The total number of jobs includes non-routine jobs as well as routine jobs, Non-routine jobs as well as routine jobs require estimating and setup work Wages and salaries Disposal fees Equipment deoreciation On-site supplies Otelce expenses Licensing an insurance Total cost $ 270,000 705,000 101,000 74,000 246,000 454,000 $1,850,000 Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and Insurance Removing Asbestos 40K 75% 45% 50% 105 50% Distribution of Resource Consumption across Activity Cost Pools Estimating and Working on Non- Job Setup routine Jobs Other 10K 35% 15 OX 25% ON 0% 40% 15% 15% 25% 10% 40% 30% 20% 0% 45% 5% Total 100% 100% 100% 100% 100 100% Requirect. 1. Perform the first-stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; Input a o wherever it is required.) Removing Asbestos Estimating and Job Setup Working on Non routine Jobs Other Totals $ 0 0 0 Wages and salarios Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 0 0 0 S S 0S 05 OS 0 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Cost Pool Removing asbestos Estimating and job setup Working on non-routine jobs Activity Rate per thousand square metres per job per non-routine job 3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square metres of each of the following jobs according to the ABC system 0. A routine 2,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.) Total cost of the job Average cost per thousand square metres b. A routine 4,000-square-metre asbestos removal Job. (Round your answers to 2 decimal places.) Total cost of the job Cost per thousand square metres c. A non-routine 2,000-square-metre asbestos removal Job. (Round your answers to 2 decimal places.) Total cost of the job Cost per thousand square metres

pur-new-sol

Related Questions