3. Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the comppax's estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work such as removal of asbestos insulation around heating pipes in older homes and nonroutine work such as removing asbestos contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine 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 are to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.50 to determine the bid price. Since our average cost is only $2.175 per square foot, that leaves enough cushion to take care of nonroutine work that shows up. To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow: 99 Activity Cost Pool Total Activity Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Activity Measure (Cost Driver) Thousands of square feet Number of Jobs Number of Nonroutine Jobs 800,000 square feet 500 Jobs 100 nonroutine jobs Overhead Costs for the Year Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and Insurance TOTAL COST $300,000 $700,000 $90,000 $50,000 $200,000 400,000 $1,740,000 Other Total Distribution of Consumption Across Activities Removing Estimating Asbestos and Job Setup Wages and salaries 50% 10% Disposal fees 60% 0% Equipment depreciation 5% On-site supplies 60% 30% Office expenses 10% 35% Licensing and Insurance 30% 0% Working on Nonroutine Jobs 30% 40% 20% 10% 25% 50% 40% 10% 0% 35% 0% 30% 20% 100% 100% 100% 100% 100% 100% *Other includes costs of idle capacity, etc. that is not allocated to any activity cost pool, but just "exists regardless of the job on hand. Thus, you need the "other" to determine the distribution of overhead costs in each of the activity cost pools, but you do not need to compute an activity rate or take into consideration when determining the cost of a particular job. L REQUIRED (NEXT PAGE) a) Perform the first-stage allocation of costs to the activity cost pools. (Hint: Find the overhead costs to be allocated to each of the activity cost pools. Create a table like the third table given but fill in the dollar amounts to replace the % distribution and sum up each column to get overhead costs allocated to each activity cost pool.) b) Compute the activity rates for the activity cost pools. c) Using the activity rates you have computed, determine the total cost and average cost per thousand square feet of each of the following jobs according to the activity-based costing system: (1) A routine 1,000-square-foot asbestos removal job (2) A routine 2,000-square-foot asbestos removal job (3) A nonroutine 2,000-square-foot asbestos removal job d) Given the results you obtained in c) above, do you agree with the estimator that the company's present policy for bidding on jobs is adequate? Explain (you do not have to do any calculations and can explain in just words)