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. Estimated Use of Cost Drivers per Service Estimated Use Estimated of Activity Cost Pools Cost Drivers Overhead Cost Drivers Audit Tax Employee training Direct labor dollars $ 201,025 $1.827.500 $1,133,000 $694,500 Typing and secretarial Number of reports/forms 76,000 2.500 800 1.700 Computing Number of minutes 223.800 60,000 27,000 33.000 Facility rental Number of employees 149.000 40 22 18 Travel Per expense reports 81.175 Direct 56,000 25.300 $731.000 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 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, eg. 12.25.) Estimated Overhead Activity-Ba Overhead R: Expected Use of Cost Drivers per Activity Direct labor dollars $ Activity Cost Pools Employee training Typing and secretarial Computing S Reports/forms $ Minutes $ Facility rental Employees $ Travel Direct Direct e prepare a schedule showing the computations of the activity-based overhead rates (per cost es to 2 decimal places, e.g. 12.25.) Expected Use of Cost Drivers per Activity Direct labor dollars $ $ $ Activity-Based Overhead Rates per DL dollar per report/form Reports/forms $ Minutes $ per minute Employees $ 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 rates to 2 decimal places, eg. 12.25 and cost assigned to O decimal places, es. 2,500) Estimated Use of Cost Drivers Activity Cost Pool Employee training Audit Activity-Based Overhead Rates Cost Assigned $ Typing and secretarial Computing $ $ $ Facility rental Travel Direct Overhead costs assigned $ Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. (Round overhead rates to 2 decimal places, e.g. 12.25 and cost assigned to decimal places, eg. 2,500) Tax Estimated Use of Activity-Based Cost Assigned Cost Drivers Overhead Rates Cost Assigned $ $ $ $ $ Direct 5 e Textbook and Media to search 0
