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 years budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.

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 years budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.

								Estimated Use of Cost Drivers per Service
Activity Cost Pools		Cost Drivers		Estimated Overhead		Estimated Use of Cost Drivers		Audit		Tax
Employee training		Direct labor dollars		$ 214,200		$ 1,785,000		$ 1,125,000		$ 660,000
Typing and secretarial		Number of reports/forms		76,000		2,500		800		1,700
Computing		Number of minutes		195,600		60,000		27,000		33,000
Facility rental		Number of employees		147,000		40		22		18
Travel		Per expense reports		81,200		Direct		56,000		25,300
				$ 714,000

(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.

		Audit		Tax
Total overhead cost assigned		$		$

Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. 12.25.) Estimated Overhead Expected Use of Cost Drivers per Activity Activity-Based Overhead Rates Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Direct labor dollars Reports/forms Minutes Employees per DL dollar per report/form per minute per employee Direct Direct Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. (Round overhead rate to 2 decimal places, e.g. 12.25 and cost assigned to 0 decimal places, e.g. 2,500.) Expected Use of Cost Drivers Audit Activity-Based Overhead Rates Expected Use of Cost Drivers Tax Activity-Based Overhead Rates Activity Cost Pool Cost Cost Assigned Employee training Typing and secretarial Computing Facility rental Travel Direct Direct Overhead costs assigned