Mercer Asbestos Removal Company removes potentially toxic
asbestos insulation and related products from buildings. There has
been a long-simmering dispute between the companyA????1s 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: A????1My 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 $2.30 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
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|
|Thousands of square feet||800||thousand|
| Estimating and job|
|Number of jobs||400||jobs|
| Working on|
|Number of nonroutine jobs||100||nonroutine jobs|
| Other (costs of idle|
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