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 Expected Use of Cost Drivers per Service Expected Use Estimated Overhead Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Cost Drivers Audit Tax Direct labor dollars Number of reports/forms Number of minutes Number of employees Per expense reports $236,275 76,000 185,425 148,000 81,300 $727,000 $1,817,500 $1,200,000 $617,500 1,700 33,000 18 25,300 2,500 60,000 40 Direct 800 27,000 56,000 (a) Your answer is correct. 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. LI ax Total overhead cost assigned 480,000 247,000