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. Activity Cost Pools Cost Drivers Employee training Direct labor dollars Typing and secretarial Number of reports/forms Computing Number of minutes Facility rental Number of employees Travel Per expense reports 800 Estimated Use of Cost Drivers per Service Estimated Use of Cost Drivers Audit Tax $1,802,500 $1,100,000 $702,500 2,500 1.700 60,000 27,000 33,000 Estimated Overhead $198,275 76,000 225,600 140,000 81,125 $721,000 40 22 18 Direct 56,000 25,300 Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services Caudit and tax) of Lewis and Stark. Audit Total overhead cost assigned $ e Textbook and Media 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 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-Based Overhead Rates Expected Use of Cost Drivers per Activity Direct labor dollars per DL dollar Activity Cost Pools Employee training Typing and secretarial Computing per Reports/forms report/form Minutes per minute Facility rental Employees per employee Trave Direct eTextbook and Media 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, es. 12.25 and cost assigned to decimal places, eg. 2,500.) Estimated Use of Cost Drivers Audit Activity-Based Overhead Rates Estimated Use of Cost Drivers Cost Assigned Activity Cost Pool Employee training Typing and secretarial Computing Facility rental Travel Direct Overhead costs assigned eTextbook and Media 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, e.g. 2,500.) Tax Audit Activity-Based Overhead Rates Cost Assigned Estimated Use of Cost Drivers Activity-Based Overhead Rates Cost Assigned Direct Direct e Textbook and Media
