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 $4,000 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 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 280 jobs* 25 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 200,000 600,000 80,000 60,000 190,000 370,000 Total cost $1,500,000 Distribution of Resource Consumption across Activity Cost Pools Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Removing Asbestos 45% 70% 40% 55% 10% 50% Estimating Working on and Job Non-routine Setup Jobs 10% 30% 0% 30% 35% 15% 25% 35% Other 15% 0 % 25% 5% 15% Total 100% 100% 100% 100% 100% 100% 10%

Please include calculations. Thanks.

Answer 1

Answer:

Activity costs and rate per activity:

Activity	Total	Removing Asbestos		Estimating and job setup		Working on non routine jobs		Other
Wages and salaries	$ 200,000	45%	$                90,000	10%	$                     20,000	30%	$                         60,000	15%	$         30,000
Disposal fees	$ 600,000	70%	$ 420,000	0%	$                               -	30%	$ 180,000	0%	$                  -
Equipment Depreciation	$                  80,000	40%	$                32,000	0%	$                               -	35%	$                         28,000	25%	$         20,000
On site supplies	$                  60,000	55%	$                33,000	15%	$                        9,000	25%	$                         15,000	5%	$           3,000
Office expenses	$ 190,000	10%	$                19,000	40%	$                     76,000	35%	$                         66,500	15%	$         28,500
Licensing and Insurance	$ 370,000	50%	$ 185,000	0%	$                               -	40%	$ 148,000	10%	$         37,000
Total Activity Cost	$            1,500,000	$ 779,000		$ 105,000		$ 497,500		$ 118,500
Activity Measure		Thousands of square meters		No. of Jobs		No. of Non Routine Jobs		NA
Total Activity		500,000	Square Meters	280	Jobs	25	Non-routine Jobs
Activity Rate		$                        1.56	Per Sq. Mts	$                          375	Per Job	$                     19,900	Per Non-routine Job

3) a) Total cost of 1,000 Sq mt asbestos removal routine job:

Total cost = Removing Asbestos + Estimating job setup cost = (1,000*$1.56)+$375 = $ 1,935

b) Total cost of 2,000 Sq mt asbestos removal routine job:

Total cost = Removing Asbestos + Estimating job setup cost = (2,000*$1.56)+$375 = $ 3,495

c) Total cost of 1,000 Sq mt asbestos removal non-routine job:

Total cost = Removing Asbestos + Estimating job setup cost + Working cost on non-routine job = (1,000*$1.56)+$375+$19,900 = $21,835

Thank You.