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 of Cost Drivers Activity Cost Pools Cost Drivers Estimated Overhead Audit Tax Employee training Direct labor dollars $220,500 $1,837,500 $1,153,000 $684,500 Typing and secretarial Number of reports/forms 76,300 2,500 800 1,700 Computing Number of minutes 216,000 60,000 27,000 33,000 Facility rental Number of employees 141,000 40 22 18 Travel Per expense reports 81,200 Direct 56,000 25,300 $735,000 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 $ $ 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.) Activity Cost Pools Estimated Overhead Activity-B: Overhead Expected Use of Cost Drivers per Activity Direct labor dollars Employee training $ $ $ Typing and secretarial Reports/forms $ Computing Minutes $ Facility rental Employees $ Travel 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, e.g. 12.25 and cost assigned to O decimal places, e.g. 2,500.) Audit Estimated Use of Cost Drivers Activity-Based Overhead Rates Activity Cost Pool Cost Assigned Employee training $ $ TA Typing and secretarial $ Computing $ Facility rental $ Travel Direct Overhead costs assigned $ $ 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 Reports/forms $ $ per report/form 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, e.g. 12.25 and cost assigned to decimal places, e.g. 2,500.) Tax Estimated Use of Cost Drivers Activity-Based Overhead Rates Cost Assigned Cost Assigned $ $ $ $ $ $ Direct $ $
