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Mercer Asbestos Removal Company removes potentially toxic asbestos insulation from buildings. There has been a long$-$simmering dispute between the company$$s estimator and the work supervisors. The on$-$site supervisors claim the estimators do not adequately distinguish between routine work, such as removing asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos$-$contaminated ceiling plaster in industrial buildings. The on$-$site supervisors believe nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: $$My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $$2\mathrm{.}50$ to determine the bid price. Because our average cost is only $$2\mathrm{.}175$ per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. 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 gathered the following activity$-$based costing data:

Activity Cost PoolActivity MeasureTotal ActivityRemoving asbestosThousands of square feet$800$thousand square feetEstimating and job setupNumber of jobs$500$jobsWorking on nonroutine jobsNumber of nonroutine jobs$100$nonroutine jobsOther $($organization$-$sustaining costs and idle capacity costs$)$None$$

Note: The $100$ nonroutine jobs are included in the total of $500$ jobs. Both nonroutine jobs and routine jobs require estimating and setup.

Costs for the Year$$Wages and salaries$ $300,000$Disposal fees$700,000$Equipment depreciation$90,000$On$-$site supplies$50,000$Office expenses$200,000$Licensing and insurance$400,000$Total cost$ $1,740,000$

Distribution of Resource Consumption Across Activities$$Removing AsbestosEstimating and Job SetupWorking on Nonroutine JobsOtherTotalWages and salaries$50\%10\%30\%10\%100\%$Disposal fees$60\%0\%40\%0\%100\%$Equipment depreciation$40\%5\%20\%35\%100\%$On$-$site supplies$60\%30\%10\%0\%100\%$Office expenses$10\%35\%25\%30\%100\%$Licensing and insurance$30\%0\%50\%20\%100\%$

Required:

Perform the first$-$stage allocation of costs to the activity cost pools.

Compute the activity rates for the activity cost pools.

Calculate 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 routine $1,000-$square$-$foot asbestos removal job.A routine $2,000-$square$-$foot asbestos removal job.A nonroutine $2,000-$square$-$foot asbestos removal job.

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