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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. Required: 1. If Anderson presents Lee 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 Lee intends to live in the home, which option would she choose? 3. If Anderson s objective is to maximize profits, which option would he recommend to Lee? What would be the ethical course of action?
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