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 year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison. Use of Cost Drivers per Service Estimated Use of Cost Drivers Cost Drivers Estimated Overhead Audit Tax Activity Cost Pools Employee training Direct labor dollars $221,100 $1,842,500 $1,140,000 $702,500 76,900 2,500 800 1,700 Typing and secretarial Computing Number of reports/forms Number of minutes 213,000 60,000 27,000 33,000 Facility rental 145,000 40 22 18 Number of employees Per expense reports Travel 81,000 Trace directly 56,000 25,300 $737,000 (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 $ e Textbook and Media Save for Later Attempts: 0 of 4 used Submit