Mercer Asbestos Removal Company removes potentially toxic asbestos insulation an
ID: 2570991 • 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 $2.50 to determine the bid price. Since our average cost is only $2.15 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. 9 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: 1,000 thousand squarefeet Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and organization-sustaining costs) 1 Number of nonroutine jobs Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup Wages and salaries ion Licensing and insurance 8 3Explanation / Answer
Answer:
1
Removing
Asbestos
Estimating and
Job Setup
Working on
Nonroutine Jobs
Other
Total
Wages and salaries
19680
3280
6560
3280
32800
Disposal fees
423600
0
282400
0
706000
Equipment depreciation
36000
4500
18000
31500
90000
On-site supplies
37100
10600
5300
0
53000
Office expenses
23000
80500
57500
69000
230000
Licensing and insurance
150500
0
215000
64500
430000
Total cost
689880
98880
584760
168280
1541800
_____________________________________________
2
Removing Asbestors
689.88
Per thousans Sequre feet
Estimating and Job Setup
247.2
Per Job
Working on Nonroutine Jobs
5847.6
Per Non routineJob
Working notes for the above answer
0
Removing
Asbestos
Estimating and
Job Setup
Working on
Nonroutine Jobs
Total cost
689880
98880
584760
Devided by
Total Activity
1000
400
100
Per Activity
689.88
247.2
5847.6
____________________________________
3
a. A routine 1,000-square-foot asbestos removal job.
Removing Asbestors(689.88*1 thousand square feet)
689.88
Estimating and Job Setup (247.2*1 job)
247.2
Working on Nonroutine Jobs
0
Total cost of Job
937.08
Average per thousand Square feet (1626.96/1 thousand square feet)
937.08
b. A routine 2,000-square-foot asbestos removal job.
Removing Asbestors(689.88*2 thousand square feet)
1379.76
Estimating and Job Setup (247.2*1 job)
247.2
Working on Nonroutine Jobs
0
Total cost of Job
1626.96
Average per thousand Square feet (1626.96/2 thousand square feet)
813.48
c. A nonroutine 2,000-square-foot asbestos removal job.
Removing Asbestors(689.88*2 thousand square feet)
1379.76
Estimating and Job Setup (247.2*1 job)
247.2
Working on Nonroutine Jobs
5847.6
Total cost of Job(5847.6*1 non routine Job)
7474.56
Average per thousand Square feet (7474.56/2 thousand square feet)
3737.28
Removing
Asbestos
Estimating and
Job Setup
Working on
Nonroutine Jobs
Other
Total
Wages and salaries
19680
3280
6560
3280
32800
Disposal fees
423600
0
282400
0
706000
Equipment depreciation
36000
4500
18000
31500
90000
On-site supplies
37100
10600
5300
0
53000
Office expenses
23000
80500
57500
69000
230000
Licensing and insurance
150500
0
215000
64500
430000
Total cost
689880
98880
584760
168280
1541800