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help with A,B,C Lewis and Stark is a public accounting firm that offers two primary services, auditing and tax- return preparation. A controversy has developed
help with A,B,C
Lewis and Stark 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. Cost Drivers Activity Cost Pools Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit $1,100,000 $216,000 $1,800,000 Tax $700,000 Employee Training Typing and secretarial Computing 76,200 2,500 800 1700 204,000 Direct labor dollars Number of reports//forms Number of minutes Number of employees Per expense reports 60,000 27,000 33,000 142,500 40 22 18 Facility Rental Travel 81,300 Direct 56,000 25,300 $720,000 a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Lewis and Stark. b. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver) Activity Cost Drivers Estimated Expected Activity-based Overhead Cost Pools Overhead Use of Cost Rate Drivers Employee Direct labor $216,000 $1,800,000 Training dollars Typing and Number of 76,200 2,500 secretarial reports//forms Computing Number of 204,000 60,000 minutes Facility Rental Number of 142,500 40 employees Travel Per expense 81.300 Direct reports c. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. Activity Expected Activity-based Overhead Overhead Applied Cost Pools Use of Cost Rate Drivers Employee $1,800,000 Training Typing and 2,500 secretarial Computing 60,000 Facility Rental 40 Travel Direct Step by Step Solution
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