Check my work 5 Mercer Asbestos Removal Company removes potentially toxic asbest
ID: 2553326 • Letter: C
Question
Check my work 5 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 $2.50 to determine the bid price. Since our average cost is only $2.44 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." 10 points eBook Print References 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 1,000 thousand square feet Thousands of square feet Number of job:s Number of nonroutine jobs 500 jobs 100 nonroutine jobs costs and idle capacity costs) Note: The 100 nonroutine jobs are included in the total of 500 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 406,000 793,000 96,000 58,000 280,000 502,000 2,135,000Explanation / Answer
STATEMENT SHOWING FIRST STAGE ALLOCATION OF COST TO ACTIVITY POOL BASIS OF Rem. Asbestos Job Setup Non routin jobs Others Total APPORTION IN $ IN $ IN $ IN $ IN $ Wages and salaries 60:10:20:10 243,600 40,600 81,200 40,600 406,000 Disposal fees 60:0:40:0 475,800 0 317,200 0 793,000 Depreciation 40:5:20:35 38,400 4,800 19,200 33,600 96,000 ON site supplies 70:20:10:0 40,600 11,600 5,800 0 58,000 Offic expense 10:35:25:30 28,000 98,000 70,000 84,000 280,000 Licencing and insurance 30:0:50:20 150,600 0 251,000 100,400 502000 TOTAL COST OF ACTIVITY 977,000 155,000 744,400 258,600 2,135,000 STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Removing Asbestos Sq. feet 977,000 1,000 977 Job Setup Jobs 155,000 500 310 Non routine jobs Non routine jobs 744,400 100 7,444 Total cost assigned: A. routine job of 1000 sq. ft Removing asbestos 977 Job Setup 310 Total cost assigned: 1287 Cost per 1000 sq. ft 1287 B. Routine 2000 sq. ft Removing asbestos 1954 Job Setup 310 Total cost assigned: 2264 Cost per 1000 sq. ft 1132 C. Non routine 2000 sqs. Ft Removing asbestos 1954 Job Setup 310 Non routine job 7444 Total cost assigned: 9708 Cost per 1000 sq. ft 4854