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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

$213,000

$1,775,000

$1,196,000

$579,000

Typing and secretarial Number of reports/forms

76,400

2,500

800

1,700

Computing Number of minutes

193,200

60,000

27,000

33,000

Facility rental Number of employees

146,000

40

22

18

Travel Per expense reports

81,400

Direct

56,000

25,300

$710,000

(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

$

$

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