Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from 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 between routine work, such as removal of asbestos insulation around heating pipes in older nomes, 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 $2.80 to determine the bid price. Since our average cost is only $2.585 per square foot, 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 not outine 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 Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining Costs for the Year. Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost None costs and idle capacity costs) Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance $ 400,000 791,000 96,000 60,000 300,000 500,000 $2,147,000 Distribution of Resource Consumption Across Activities Removing Asbestos 60% 60% 48% 60% 18% 30% Estimating Working on and Job Nonroutine Jobs 20% 40% 25% 15% 25% 50% Total Activity 850 thousand square feet 400 jobs 100 nonroutine jobs Setup 18% 8% 5% 25% 35% Other 18% 30% 8% 38% 20% Total 100% 100% 100% 100% 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. 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. a. A routine 1,000-square-foot asbestos removal job. o. 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 and related products from 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 between routine work, such as removal of asbestos insulation around heating pipes in older nomes, 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 $2.80 to determine the bid price. Since our average cost is only $2.585 per square foot, 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 not outine 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 Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining Costs for the Year. Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost None costs and idle capacity costs) Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance $ 400,000 791,000 96,000 60,000 300,000 500,000 $2,147,000 Distribution of Resource Consumption Across Activities Removing Asbestos 60% 60% 48% 60% 18% 30% Estimating Working on and Job Nonroutine Jobs 20% 40% 25% 15% 25% 50% Total Activity 850 thousand square feet 400 jobs 100 nonroutine jobs Setup 18% 8% 5% 25% 35% Other 18% 30% 8% 38% 20% Total 100% 100% 100% 100% 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. 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. a. A routine 1,000-square-foot asbestos removal job. o. A routine 2,000-square-foot asbestos removal job. c. A nonroutine 2,000-square-foot asbestos removal job.

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter16: Tax Research

Section: Chapter Questions

Problem 57DNC

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