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 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:
Required:
1. Using Exhibit as a guide, perform the first-stage allocation of costs to the activity cost pools.
2. Using Exhibit as a guide, compute the activity rates for the activity cost pools.
3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square metres of each of the following jobs according to the ABC system:
a. A routine 2,000-square-metre asbestos removal job.
b. A routine 4,000-square-metre asbestos removal job.
c. A non-routine 2,000-square-metre asbestos removal job.
4. Given the results you obtained in (3) above, do you agree with the estimator that the company’s present policy for bidding on jobs is adequate?


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  • CreatedJuly 08, 2015
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