4. The objectivity of the interview data can be questioned since the on-site
work supervisors were undoubtedly trying to prove their case about the
cost of nonroutine jobs. Nevertheless, the activity-based costing data
certainly suggest that dramatic differences exist in the costs of jobs.
While some of the costs may be difficult to adjust in response to
changes in activity, it does appear that the standard bid of $2,500 per
thousand square feet may be substantially under the company’s cost for
nonroutine jobs. Even though it may be difficult to detect nonroutine
situations before work begins, the average additional cost of $6,430 for
nonroutine work suggests that the estimator should try. And if a non-
routine situation is spotted, this should be reflected in the bid price.
Savvy competitors are likely to bid less than $2,500 per thousand
square feet on routine work and substantially more than $2,500 per
thousand square feet on nonroutine work. Consequently, Mercer Asbes-
tos Removal may find that its product mix shifts toward nonroutine work
and away from routine work as customers accept bids on nonroutine
work from the company and go to competitors for routine work. This
may have a disastrous effect on the company’s profits.
Problem 8-28 (20 minutes)
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