Hy and van Lamsweerde is a public accounting firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines regarding who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labour dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for analysis and comparison. The following overhead data are collected:

Instructions
(a) Using traditional product costing as proposed by the tax partners, calculate the total overhead cost assigned to both services (audit and tax) of Hy and van Lamsweerde.
(b) 1. Using activity-based costing, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
(c) Classify each of the activities as a value-added activity or a non-value-added activity.
(d) Comment on the comparative overhead cost for the two services under both traditional costing and ABC.

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Expected Use of Cost Drivers per Service Estimated Expected Use Overhead of Cost Drivers Audit Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Direct labour dollars Number of reports and forms Number of minutes Number of employees Per expense reports Tax $216,000 $1,800,000 $1,050,000 $750,000 1,700 25,000 35,000 18 56,000 25,300 76,200 204,000 142,500 81,300 $720,000 800 2,500 60,000 40 Direct