3. Smith and Jones is a law firm that provides services in both civil law and criminal law. 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 criminal law partners argue for assigning overhead on the basis of 28.125% of direct labour dollars, while the civil law partners argue for implementing activity based- costing (ABC). 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. (10 Marks) Expected Use of Expected Use of Cost Drivers Estimated Cost per Service Activity Cost Pool Cost Driver Overhead Drivers Civil Criminal Employee training Direct labour dollars $100,000 $1,600,000 $900,000 $700,000 Typing and Number of reports/ secretarial forms 60,000 2,000 500 1,500 Computing Number of minutes 120,000 40,000 17,000 23,000 Facility rental Number of employees 100,000 25 14 11 Travel Per expense reports 70,000 Direct 48,000 22,000 $450,000 (a) Using activity-based costing, prepare a schedule assigning each activity's overhead cost pool to each of Civil and Criminal services based on the use of the cost drivers. (7 marks) (b) Product cost distortions as a result of weak correlation between overhead allocation method and basis led to increase in demand for Activity based costing. Explain this statement