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 $3.00 to determine the bid price. Since our average cost is only $2.675 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 Activity Measure Total activity Removing asbestos Thousands of square feet 800 thousand square feet Estimating and job setup Number of jobs 500 jobs Working on nonroutine jobs Number of nonroutine jobs 100 nonroutine Jobs Other (organization-sustaining costs and idle capacity costs) 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 Equipment depreciation On-site supplies 011ice expenses Licensing and insurance Total cost 414.000 808,000 94.000 61,000 310,000 510.000 $ 2.197,000 Distribution of Resource Consumption across Activities Estimating Renoving and Job Asbestos Setup EN working on Nonroutine Jobs Other Total

Answer 1

	Mercer Asbestos
	Distribution of Resource Consumption Across Activites
		Removing Asbestos	Estimating and Job Setup	Working on non routine Jobs	Other	Total
1)
	Wages and Salaries	50%	10%	30%	10%	100%
	Disposal Fees	70%	0	30%	0	100%
	Equipment Depreciation	50%	10%	15%	25%	100%
	On -Site Supplies	70%	20%	10%	0%	100%
	Office Expense	10%	35%	25%	30%	100%
	Licencing and Insurance	25%	0%	60%	15%	100%
	First Stage Allocation
		Removing Asbestos	Estimating and Job Setup	Working on non routine Jobs	Other	Total
	Wages and Salaries	$             2,07,000.00	$                             41,400.00	$                               1,24,200.00	$                   41,400.00	$    4,14,000.00
	Disposal Fees	$             5,65,600.00	$                                             -	$                               2,42,400.00	$                                   -	$    8,08,000.00
	Equipment Depreciation	$                 47,000.00	$                                9,400.00	$                                   14,100.00	$                   23,500.00	$        94,000.00
	On -Site Supplies	$                 42,700.00	$                             12,200.00	$                                     6,100.00	$                                   -	$        61,000.00
	Office Expense	$                 31,000.00	$                          1,08,500.00	$                                   77,500.00	$                   93,000.00	$    3,10,000.00
	Licencing and Insurance	$             1,27,500.00	$                                             -	$                               3,06,000.00	$                   76,500.00	$    5,10,000.00
	Total Cost	$           10,20,800.00	$                          1,71,500.00	$                               7,70,300.00	$                2,34,400.00	$ 21,97,000.00
	Wages and Salaries	(414000*50%)	($414000*10%)	($414000*30%)	($414000*10%)	$    4,14,000.00
	Disposal Fees	($808000*70%)	($808000*0%)	($808000*30%)	($808000*0%)	$    8,08,000.00
	Equipment Depreciation	($94000*50%)	($94000*10%)	($94000*15%)	($94000*25%)	$        94,000.00
	On -Site Supplies	($61000*70%)	($61000*20%)	($61000*10%)	($61000*0%)	$        61,000.00
	Office Expense	($310000*10%)	($310000*35%)	($310000*25%)	($310000*30%)	$    3,10,000.00
	Licencing and Insurance	($510000*25%)	($510000*0%)	($510000*60%)	($510000*15%)	$    5,10,000.00
						$ 21,97,000.00