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 equip- ment 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 5 hrs. 2 hrs. $30 per hr. Materials Repair option Replace option Labor rate $140 $240
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 equip- ment 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 5 hrs. 2 hrs. $30 per hr. Materials Repair option Replace option Labor rate $140 $240
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 19E
Related questions
Question
If Anderson’s objective is to maximize profits, which option would he recommend to Lee? What would be the ethical course of action?
![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 equip-
ment 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
5 hrs.
2 hrs.
$30 per hr.
Materials
Repair option
Replace option
Labor rate
$140
$240](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F51bb2c50-a6ab-4507-90b8-24cebd0a1383%2F1e319ebf-20a6-45aa-a79b-7a75d9bba36e%2Fm3qjfg.jpeg&w=3840&q=75)
Transcribed Image Text: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 equip-
ment 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
5 hrs.
2 hrs.
$30 per hr.
Materials
Repair option
Replace option
Labor rate
$140
$240
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