Chapter 13, Problem 13.30P

Cost-plus, time and materials, ethics. C & S Mechanical sells and services plumbing, heating, and air-conditioning systems. C & S’s cost accounting system tracks two cost categories: direct labor and direct materials. C & S uses a time-and-materials pricing system, with direct labor marked up 90% and direct materials marked up 40% to recover indirect costs of support staff, support materials, and shared equipment and tools and to earn a profit.

During a hot summer day, the central air-conditioning in Brooke Lee’s home stops working. C & S technician John Anderson arrives at Lee’s home and inspects the air conditioner. He considers two options: replace the compressor or repair it. The cost information available to Anderson follows:

	Labor	Materials
Repair option	5 hrs.	$140
Replace option	2 hrs.	$240
Labor rate	$30 per hr.

1. 1. If Anderson presents Lee with the replace or repair options, what price would he quote for each? Required
2. 2. If the two options were equally effective for the 3 years that Lee intends to live in the home, which option would she choose?
3. 3. If Anderson’s objective is to maximize profits, which option would he recommend to Lee? What would be the ethical course of action?