Question

Vance Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company's estimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and non-routine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that non-routine 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 metres by $4,900 per thousand square metres to determine the bid price. Since our average cost is only $3,900 per thousand square metres, that leaves enough cushion to take care of the additional costs of non-routine 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 ABC study of all of its costs. Data from the ABC system follow: Activity Cost Pool Removing asbestos Estimating and job setup Working on non-routine jobs Other (costs of idle capacity and organization-sustaining costs) Activity Measure Thousands of square metres Number of jobs Number of non-routine jobs Not applicable; these costs are not allocated to jobs. Total Activity 500,000 m2 250 jobs 27 non-routine jobs * The total number of jobs includes non-routine jobs as well as routine jobs. Non-routine jobs as well as routine jobs require estimating and setup work. $ Wages and salaries Disposal fees Equipment depreciation On-site supplies office expenses Licensing and insurance 290,000 735,000 107,000 78,000 262,000 478,000 Total cost $1,950,000

Answer 1

Requirement 1 Wages and Salaries Disposal Fees Equipment Depreciation On site supplies Office expenses Licensing and Insurance Total Cost Removing asbestos Estimating and job setup Working on non routine jobs Others 1,16,000.00 $ 29,000.00 $ 1,01,500.00 $ $ 5,51,250.00 $ 1,83,750.00 $ $ 48,150,00 $ 42,800.00 $ $ 39,000.00 $ 11,700.00 $ 19,500.00 $ $ 26,200.00 $ 1,04,800.00 $ 78,600.00 $ $ 2,39,000.00 $ 2,15,100.00 $ $ 10,19,600.00 $ 1,45,500.00 $ 6,41,250.00 $ 43,500.00 - 16,050,00 7,800.00 52,400.00 23,900.00 1,43,650.00 Total $ 2.90,000.00 $ 7,35,000.00 $ 1,07,000.00 $ 78,000.00 $ 2,62,000.00 $ 4,78,000.00 $ 19,50,000.00 Requirement 2 Total Activity (B) Activity Cost pool Removing asbestos Estimating and job setup Working on non routine jobs Total Cost (A) $ 10,19,600.00 1,45,500.00 $ 6,41,250.00 500 $ 250 $ 27 $ Activity Rate (A/B) 2,039.20 Per Thousand Square feet 582.00 Per Job 23,750.00 Per Non Routine Job Requirement 3 4,078.40 582,00 $ (a) Routine 2000 square foot asbestos removal Job Removing Asbestos ($2039.2 per thousand sq foot*2) Estimating and job setup ($582*1 job) Non routine Job (NA) Total Cost of Job Avg Cost per Thousand square feet $ $ 4,660.40 2,330.20 8,156.80 582.00 (b) Routine 4000 square foot asbestos removal Job Removing Asbestos ($2039.2 per thousand sq foot+4) Estimating and job setup ($582*1 job) Non routine Job (NA) Total Cost of Job Avg Cost per Thousand square feet = 8,738.80 2.184.70 $ (C) Non-Routine 2000 square foot asbestos removal Job Removing Asbestos ($2039.2 per thousand sq foot*2) Estimating and job setup ($582*1 job) Non routine Job Total Cost of Job Avg Cost per Thousand square feet = $ $ $ 4,078.40 582,00 23,750,00 28,410.40 14,205,20