Mercer Asbestos Removal Company removes potentially toxic asbestos insulation an
ID: 2412144 • Letter: M
Question
Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company's 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: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $3.60 to determine the bid price. Since our average cost is only $2.845 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." 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 Measure Total Activity Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining costs Thousands of square feet Number of jobs Number of nonroutine jobs 750 thousand square feet 400 jobs 100 nonroutine jobs and idle capacity costs) Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. None Costs for the Year Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost $ 460,000 862,000 104,000 66,000 360,000 560,000 ? 2,412,000Explanation / Answer
1.
2.
Working:
3a. to c.
Working:
Removing Estimating and Working on Other Total Asbestos Job Setup Nonroutine Jobs Wages and salaries 230000 69000 92000 69000 460000 Disposal fees 603400 0 258600 0 862000 Equipment depreciation 52000 10400 15600 26000 104000 On-site supplies 39600 19800 6600 0 66000 Office expenses 54000 126000 72000 108000 360000 Licensing and insurance 140000 0 336000 84000 560000 Total cost 1119000 225200 780800 287000 2412000