Vance Asbestos Removal Company removes potentially toxic asbestos insulation and

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 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 metres by $4,000 per thousand square metres to determine the bid price. Since our average cost is only $3,000 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 Activity Measure Total Activity Thousands of square metres 50,000 m2 280 jobs Number of jobs Number of non-routine jobs Not applicable; these costs are 25 non-routine jobs Other (costs of idle capacity and organization-sustaining costs) not allocated to 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. S 200,000 600,000 80,000 60,000 190,000 370,000 Wages and salaries Disposal fees On-site supplies Office expenses Licensing and insurance Total cost $1,500,000 FI F3

Explanation / Answer

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2)

3a)

3b)

3c)  

Removing Asbestos Estimating and job setup Working on non-routine job Other Total Wages & salaries $90,000 $20,000 $60,000 $30,000 $2,00,000 Disposal fees $4,20,000 $0 $1,80,000 $0 $6,00,000 Equipment depreciation $32,000 $0 $28,000 $20,000 $80,000 On-site supplies $33,000 $9,000 $15,000 $3,000 $60,000 Office expenses $19,000 $76,000 $66,500 $28,500 $1,90,000 Licensing & insurance $1,85,000 $0 $1,48,000 $37,000 $3,70,000 Total cost $7,79,000 $1,05,000 $4,97,500 $1,18,500 $15,00,000

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