Mercer Asbestos Removal Company removes potentially toxic as

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 $2.175 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 Total Activity Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs 800 thousand square feet 500 jobs 100 nonroutine jobs ing 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 300,000 700,000 90,000 50,000 200,000 400,000 On-site supplies Office expenses Licensing and insurance Total cost s 1,740,000 Estimating Working on Removing and Job Nonroutine Total 100% 100% 100% 100% 100% Jobs 30% Asbestos Setup 50% 60% 40% 60% 10% 10% 0% 35% Wages and salaries Disposal fees 10% 0% On-site supplies Office expenses Licensing and insurance 10% 25% 35% 20%

Solution

Distribution of resource consumption Across Activities Removing Asbestos Estimating and job setup Working on non routine jobs others Total Wages And Salaries 150000 30000 90000 30000 300000 Disposal Fees 420000 0 280000 0 700000 Equipment Depriciation 36000 4500 18000 31500 90000 On-Suit Supplies 30000 15000 5000 0 50000 Office Expenses 20000 70000 50000 60000 200000 Licincing and Insurance 120000 0 200000 80000 400000 Total 776000 119500 643000 201500 1740000 2 Removing asbestos 776000/800 thousands per sq feet 970 Estimating and job setup 119500/500 jobs 239 Working on non routine jobs 643000/100 non routine jobs 6430 3 Removing asbestos 970 * 1 thousand sq feet 970 Estimating and job setup per job 239 Working on non routine jobs not applicable 0 Cost per 1 thousand sq feet 1209