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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

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

$198,000

$1,800,000

$1,168,000

$632,000

Typing and secretarial Number of reports/forms

76,400

2,500

800

1,700

Computing Number of minutes

216,600

60,000

27,000

33,000

Facility rental Number of employees

148,000

40

22

18

Travel Per expense reports

81,000

Direct

56,000

25,300

$720,000

(a)

(b1)

Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rates to 2 decimal places, e.g. 12.25.)

Activity Cost Pools

Estimated Overhead

Expected Use of Cost Drivers per Activity

Activity-Based Overhead Rates

Employee training

$

$

Direct labor dollars

$

per DL dollar
Typing and secretarial Reports/forms

$

per report/form
Computing Minutes

$

per minute
Facility rental Employees

$

per employee
Travel Direct Direct

$

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