Mercer Asbestos Removal Company removes potentially toxicasbestos insulation and related products from buildings. There hasbeen a long-simmering dispute between the company’s estimator andthe work supervisors. The on-site supervisors claim that theestimators do not adequately distinguish between routine work, suchas removal of asbestos insulation around heating pipes in olderhomes, and nonroutine work, such as removing asbestos-contaminatedceiling plaster in industrial buildings. The on-site supervisorsbelieve that nonroutine work is far more expensive than routinework and should bear higher customer charges. The estimator sums uphis position in this way: “My job is to measure the area to becleared of asbestos. As directed by top management, I simplymultiply the square footage by $4.20 to determine the bid price.Since our average cost is only $2.90 per square foot, that leavesenough cushion to take care of the additional costs of nonroutinework that shows up. Besides, it is difficult to know what isroutine or not routine until you actually start tearing thingsapart.”

To shed light on this controversy, the company initiated anactivity-based costing study of all of its costs. Data from theactivity-based costing system follow:

Activity Cost Pool	ActivityMeasure	Total Activity
Removing asbestos	Thousands of square feet	500	thousand square feet
Estimating and job setup	Number of jobs	400	jobs
Working on nonroutine jobs	Number of nonroutine jobs	100	nonroutine jobs
Other (organization-sustainingcosts and idle capacity costs)	None
Note: The 100nonroutine jobs are included in the total of 400 jobs. Bothnonroutine jobs and routine jobs require estimating and setup.

Costs for the Year
Wages and salaries	$	431,000
Disposal fees		713,000
Equipment depreciation		104,000
On-site supplies		63,000
Office expenses		330,000
Licensing and insurance		530,000
Total cost	$	2,171,000

Distribution ofResource Consumption Across Activities
	Removing Asbestos			Estimating and Job Setup			Working on Nonroutine Jobs			Other		Total
Wages and salaries	60	%		10	%		20	%		10	%	100	%
Disposal fees	60	%		0	%		40	%		0	%	100	%
Equipment depreciation	50	%		10	%		15	%		25	%	100	%
On-site supplies	70	%		20	%		10	%		0	%	100	%
Office expenses	10	%		35	%		25	%		30	%	100	%
Licensing and insurance	20	%		0	%		50	%		30	%	100	%

Required:

1. Perform the first-stage allocation of costs to the activitycost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine thetotal cost and the average cost per thousand square feet of each ofthe following jobs according to the activity-based costingsystem.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.