ADMS 2320 Study Guide - Final Guide: Statistical Parameter, F-Test
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Denny Asbestos Removal Company removes potentially toxicasbestos insulation and related products from buildings. Thecompanyâs estimator has been involved in a long-simmering disputewith the on-site work supervisors. The on-site supervisors claimthat the estimator does not adequately distinguish between routinework such as removal of asbestos insulation around heating pipes inolder homes and nonroutine work such as removingasbestos-contaminated ceiling plaster in industrial buildings. Theon-site supervisors believe that nonroutine work is far moreexpensive than routine work and should bear higher customercharges. The estimator sums up his position in this way: âMy job isto measure the area to be cleared of asbestos. As directed by topmanagement, I simply multiply the square footage by $4,000 perthousand square feet to determine the bid price. Since our averagecost is only $3,000 per thousand square feet, that leaves enoughcushion to take care of the additional costs of nonroutine workthat shows up. Besides, it is difficult to know what is routine ornonroutine until you actually start tearing things apart.â |
To shed light on this controversy,the company initiated an activity-based costing study of all of itscosts. Data from the activity-based costing system follow: |
| Activity Cost Pool | ActivityMeasure | Total Activity | |
| Removingasbestos | Thousands of square feet | 500 | thousandsquare feet |
| Estimating and jobsetup | Number of jobs | 200 | jobs* |
| Working onnonroutine jobs | Number of nonroutine jobs | 25 | nonroutine jobs |
| Other(organization-sustaining and idle capacity costs) | None | Not applicable | |
* The total number of jobs includes nonroutine jobs as well asroutine jobs. Nonroutine jobs as well as routine jobs requireestimating and setup work. |
| Costs for theYear | ||
| Wages andsalaries | $ | 200,000 |
| Disposal fees | 600,000 | |
| Equipmentdepreciation | 80,000 | |
| On-sitesupplies | 60,000 | |
| Office expenses | 190,000 | |
| Licensing andinsurance | 370,000 | |
| Total cost | $ | 1,500,000 |
Distribution of Resource Consumption Across Activities | ||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||
| Wages andsalaries | 40 | % | 10 | % | 35 | % | 15 | % | 100 | % |
| Disposal fees | 70 | % | 0 | % | 30 | % | 0 | % | 100 | % |
| Equipmentdepreciation | 50 | % | 0 | % | 40 | % | 10 | % | 100 | % |
| On-sitesupplies | 55 | % | 15 | % | 20 | % | 10 | % | 100 | % |
| Office expenses | 10 | % | 40 | % | 30 | % | 20 | % | 100 | % |
| Licensing andinsurance | 50 | % | 0 | % | 40 | % | 10 | % | 100 | % |
| Required: |
| 1. | Perform the first-stage allocation of costs to the activity costpools. |
| 2. | Compute the activity rates forthe activity cost pools. |
| 3. | Using the activity rates you have computed, determine the totalcost and the average cost per thousand square feet of each of thefollowing jobs according to the activity-based costing system.(Round the "Average cost" to 2 decimalplaces.) |
| a. | A routine 2,000-square-footasbestos removal job. | |
| b. | A routine 4,000-square-footasbestos removal job. |
| c. | A nonroutine 2,000-square-footasbestos removal job. |
Denny Asbestos Removal Company removes potentially toxicasbestos insulation and related products from buildings. Thecompanyâs estimator has been involved in a long-simmering disputewith the on-site work supervisors. The on-site supervisors claimthat the estimator does not adequately distinguish between routinework such as removal of asbestos insulation around heating pipes inolder homes and nonroutine work such as removingasbestos-contaminated ceiling plaster in industrial buildings. Theon-site supervisors believe that nonroutine work is far moreexpensive than routine work and should bear higher customercharges. The estimator sums up his position in this way: âMy job isto measure the area to be cleared of asbestos. As directed by topmanagement, I simply multiply the square footage by $6,000 perthousand square feet to determine the bid price. Since our averagecost is only $3,000 per thousand square feet, that leaves enoughcushion to take care of the additional costs of nonroutine workthat shows up. Besides, it is difficult to know what is routine ornonroutine until you actually start tearing things apart.â
To shed light on this controversy,the company initiated an activity-based costing study of all of itscosts. Data from the activity-based costing system follow: |
| Activity Cost Pool | ActivityMeasure | Total Activity | |
| Removing asbestos | Thousands ofsquare feet | 520 | thousandsquare feet |
| Estimating and job setup | Number ofjobs | 160 | jobs* |
| Working on nonroutine jobs | Number ofnonroutine jobs | 28 | nonroutinejobs |
| Other (organization-sustaining and idle capacity costs) | None | Not applicable | |
* The total number of jobs includes nonroutine jobs as well asroutine jobs. Nonroutine jobs as well as routine jobs requireestimating and setup work. |
| Costs for the Year | ||
| Wages and salaries | $ | 207,000 |
| Disposal fees | 608,000 | |
| Equipment depreciation | 16,000 | |
| On-site supplies | 59,000 | |
| Office expenses | 187,000 | |
| Licensing and insurance | 372,000 | |
| Total cost | $ | 1,449,000 |
Distribution of Resource Consumption Across Activities | ||||||
| Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total | ||||||
| Wages and salaries | 33 | % | 12 | % | 31 | % | 24 | % | 100 | % |
| Disposal fees | 73 | % | 0 | % | 27 | % | 0 | % | 100 | % |
| Equipment depreciation | 43 | % | 0 | % | 37 | % | 20 | % | 100 | % |
| On-site supplies | 52 | % | 11 | % | 18 | % | 19 | % | 100 | % |
| Office expenses | 7 | % | 36 | % | 27 | % | 30 | % | 100 | % |
| Licensing and insurance | 41 | % | 0 | % | 32 | % | 27 | % | 100 | % |
| Required: |
| 1. | Perform the first-stage allocation of costs to the activity costpools. |
| 2. | Compute theactivity rates for the activity cost pools. (Round youranswers to 2 decimal places.) |
| 3. | Using the activity rates you have computed, determine the totalcost and the average cost per thousand square feet of each of thefollowing jobs according to the activity-based costing system.(Round your intermediate and final answers to 2 decimalplaces.) |
| a. | A routine4,000-square-foot asbestos removal job. | |
| b. | A routine6,000-square-foot asbestos removal job. |
| c. | A nonroutine4,000-square-foot asbestos removal job. |
