Question Details
Mercer Asbestos Removal Company removes potentially toxic
asbestos insulation and related products from buildings. There has
been a long-simmering dispute between the companyAc??cs 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
homes 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: Ac?A?My job is to measure the area to be
cleared of asbestos. As directed by top management, I simply
multiply the square footage by $3.20 to determine the bid price.
Since our average cost is only $2.74 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 routine until you actually start tearing things
apart.Ac???
|
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
| Activity
Measure |
Total Activity
| |
| Removing
asbestos | Thousands of square feet | 800 | thousand
square feet |
| Estimating and job
setup | Number of jobs | 500 | jobs |
| Working on
nonroutine jobs | Number of nonroutine jobs | 100 | nonroutine jobs |
| Other (costs of idle
capacity and
organization-sustaining 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 | $ | 470,000 |
| Disposal fees | 801,000 | |
| Equipment
depreciation | 110,000 | |
| On-site
supplies | 68,000 | |
| Office expenses | 370,000 | |
| Licensing and
insurance | 570,000 | |
| Total cost | $ | 2,389,000 |
Distribution of Resource 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 | 60 | % | 25 | % | 15 | % | 0 | % | 100 | % | ||
| Office expenses | 10 | % | 40 | % | 15 | % | 35 | % | 100 | % | ||
| Licensing and
insurance | 30 | % | 0 | % | 50 | % | 20 | % | 100 | % | ||
2.
| ||||||||||||
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This question was answered on: Dec 08, 2020
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DATE ANSWEREDDec 08, 2020
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