Mercer Asbestos Removal Company removes potentially toxic asbestos insulation an
ID: 2573968 • 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 $2.60 to determine the bid price. Since our average cost is only $2.35 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 Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and organization-sustaining costs) Activity Measure Total Activity asbestos 1,000 thousand squarefeet Thousands of square feet Number of jobs Number of nonroutine jobs 500 jobs 100 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 $ 402,000 737,000 Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 104,000 64.000 330,000 2.097,000 Distribution of Resource Consumption Across Activities Working on Removing Estimating and Nonroutine Other 15% 0% 25% 0% 3096 AsbestosJob Setup Total Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses 50% 60% 50% 70% 10% 15% 0% 10% 20% 35% Jobs 20% 40% 15% 10% 25% 100% 100% 100% 100% 100%Explanation / Answer
1. First Stage Allocation :
2. Activity Rates :
3. a. A routine 1,000 sq. ft. asbestos removal job :
b. A routine 2,000 sq.ft. asbestos removal job :
c. A non-routine 2,000 sq. ft. asbestos removal job:
Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total $ $ $ $ $ Wages and Salaries 201,000 60,300 80,400 60,300 402,000 Disposal Fees 442,200 0 294,800 0 737,000 Equipment Depreciation 52,000 10,400 15,600 26,000 104,000 On-Site Supplies 44,800 12,800 6,400 0 64,000 Office Expenses 33,000 115,500 82,500 99,000 330,000 Licensing and Insurance 138,000 0 230,000 92,000 460,000 Totals 911,000 199,000 709,700 277,300 2,097,000