Cost-plus, time and materials, ethics:A & L Mechanical sells and services plumbing, heating,and air-conditioning systems. A & Ls cost accounting system tracks two cost categories: direct labor anddirect materials. A & L uses a time-and-materials pricing system, with direct labor marked up 80% anddirect materials marked up 60% to recover indirect costs of support staff, support materials, and sharedequipment and tools and to earn a profit.

During a hot summer day, the central air conditioning in Michelle Lowrys home stops working. A & Ltechnician Tony Dickenson arrives at Lowrys home and inspects the air conditioner. He considers two options:replace the compressor or repair it. The cost information available to Dickenson follows:

Labor Materials

Repair option 7 hrs. $120

Replace option 4 hrs. $230

Labor rate $45 per hr.

1. If Dickenson presents Lowry with the replace or repair options, what price would he quote for each?

2. If the two options were equally effective for the 3 years that Lowry intends to live in the home, whichoption would she choose?

3. If Dickensons objective is to maximize profits, which option would he recommend to Lowry? What