McDonald and O'Toole is a law firm that serves both individuals and corporations. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The individual partners argue for assigning overhead on the basis of 28.125% of direct labour dollars, while the corporate partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.

Instructions
(a) Using traditional product costing as proposed by the tax partners, calculate the total overhead cost assigned to both services (individual and corporate) of McDonald and O'Toole.
(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 service line under both traditional costing and ABC.

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Expected Use of Cost Activity Cost Poo Cost Driver Employee training Clerical Computing Facility rental Travel Estimated Expected Use Drivers per Service Overhead of Cost Drivers Corporate Individual $120,000 $1,600,000 $900,000 $700,000 1,500 23,000 Direct labour dollars Number of reports and forms Number of minutes Number of employees Per expense reports 60,000 100,000 100,000 70,000 $450,000 2,000 40,000 25 Direct 500 17,000 14 48,000 22,000