FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Mercer Asbestos Removal Company removes potentially toxic asbestos
insulation from buildings. There has been a long-simmering dispute between
the company's estimator and the work supervisors. The on-site supervisors
claim the estimators do not adequately distinguish between routine work, such
as removing 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 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 $2.80 to determine the bid price. Because our average cost is
only $2.315 per square foot, that leaves enough cushion to take care of the
additional costs of nonroutine work. 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 gathered the following activity-based costing
data: 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 $360,000 Disposal fees 765,000 Equipment depreciation
98,000 On-site supplies 57,000 Office expenses 270,000 Licensing and insurance
470,000 Total cost $ 2,020,000 Distribution of Resource Consumption Across Activities
Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs
Other Total Wages and salaries 50% 10% 30% 10% 100% Disposal fees
70% 0% 30% 0% 100% Equipment depreciation 40% 5% 20% 35% 100% On-site supplies
60% 30% 10% 0% 100% Office expenses 15% 35% 20% 30% 100% Licensing and insurance
30% 0% 50% 20% 100%
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Transcribed Image Text:Mercer Asbestos Removal Company removes potentially toxic asbestos insulation from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately distinguish between routine work, such as removing 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 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 $2.80 to determine the bid price. Because our average cost is only $2.315 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. 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 gathered the following activity-based costing data: 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 $360,000 Disposal fees 765,000 Equipment depreciation 98,000 On-site supplies 57,000 Office expenses 270,000 Licensing and insurance 470,000 Total cost $ 2,020,000 Distribution of Resource Consumption Across Activities Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total Wages and salaries 50% 10% 30% 10% 100% Disposal fees 70% 0% 30% 0% 100% Equipment depreciation 40% 5% 20% 35% 100% On-site supplies 60% 30% 10% 0% 100% Office expenses 15% 35% 20% 30% 100% Licensing and insurance 30% 0% 50% 20% 100%
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