Rice and Conwell 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 as to 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 labor dollars, while the audit 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, compute the total overhead cost assigned to both services (audit and tax) of Rice and Conwell.
(b) (1) Using activity-based costing, prepare a schedule showing the computations 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 andABC.

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Expected Use Expected Use of of Cost Drivers Estimated Cost r Service Activity Cost Pools Cost DriversOverhead Drivers AuditT Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000 Iyping and ах forms 2,500 60,000 25,000 35,000 600 1,900 76,200 Number of minutes 204,000 Number of employees 142,500 Per expense reports81,300 $720,000 Facility rental Travel 40 18 Direct 56,000 25,300