Mercer Asbestos Removal Company removes potentially toxic asbestos insulation an
ID: 2513291 • 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 $2.70 to determine the bid price. Since our average cost is only $2.40 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 Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and organization-sustaining costs) Activity Measure Total Activity 800 thousand squarefeet 500 jobs 100 nonroutine jobs square feet Thousands of Number of jobs Number of nonroutine jobs 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 Disposal fees S 323,000 759,000 90,000 56,000 250,000 50,000 S 1,928,000 On-site supplies Office expenses Total cost Distribution of Resource Consumption Across Activities Working on Asbestos Job Setup 10% Total Other 10% Wages and salaries Disposal fees Equipment depreciation On-site supplies Office ex 60% 60% 40% 70% 15% 25% 100% 100% 100% 100% 100% 100% 40% 20% 20% 35% 096 35% 0% 30% 15% 60%Explanation / Answer
STATEMENT SHOWING FIRST STAGE ALLOCATION OF COST TO ACTIVITY POOL BASIS OF Asbestos Job Setup Non Routine Others Total APPORTION IN $ IN $ IN $ IN $ IN $ Wages and salaries 60:10:20:10 193,800 32,300 64,600 32,300 323,000 Disposal fees 60:0:40:0 455,400 0 303,600 0 759,000 Depreciation 40:5:20:35 36,000 4,500 18,000 31,500 90,000 On site supplies 70:20:10:0 39,200 11,200 5,600 0 56,000 Office expense 15:35:20:30 37,500 87,500 50,000 75,000 250,000 Licensing and insurance 25:0:60:15 112,500 0 270,000 67,500 450000 TOTAL COST OF ACTIVITY 874,400 135,500 711,800 206,300 1,928,000 STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Asbestos 1000 Sq. ft 874,400 800 1,093 per 1000 sq. ft job Setup Jobs 135,500 500 271 per job Non routine job Non Routine jobs 711,800 100 7,118 per non routine job Req 3-a: Total cost: Asbestos 1093 Job Setup 271 Total cost: 1364 Sq. feet 1 Cost per 1000 sq. ft 1364 per 1000 sq. ft b. Total cost: Asbestos 2186 Job Setup 271 Total cost: 2457 Sq. feet 2 Cost per 1000 sq. ft 1229 per 1000 sq. ft C. Total cost: Asbestos 2186 Job Setup 271 Non routine job 7118 Total cost: 9575 Sq. feet 2 Cost per 1000 sq. ft 4788 per 1000 sq. ft