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 Overhead Estimated Use of Cost Drivers Activity Cost Pools Cost Drivers Audit Tax Employee training Direct labor dollars $199,275 $1,80 2.500 $1,100,000 $702,500 Typing and secretarial Number of reports/forms 76,000 2.500 300 1,700 Computing Number of minutes 225,600 60,000 27,000 32.000 Facility rental Number of employees 140,000 40 22 18 Travel Per expense reports 81,125 Direct 56,000 25,300 $721,000 (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. Audit Tax Total overhead cost assigned $ 440,000 281,000 e Textbook and Media Attempts: 1 of 3 used (11) Your answer is correct. 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 Expected Use of Cost Drivers per Activity Acti Ovei Employee training 198275 180250C Direct labor dollars Typing and secretarial 76000 2.500 Reports/forms $ Computing 225600 6000C Minutes $ Facility rental 140000 40 Employees Travel 81125 Direct Direct 721000 e Textbook and Media Attempts: 1 of 3 used (62) ) 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 decimal places eg. 2.500.) Audit Estimated Use of Cost Drivers Activity-Based Overhead Rates Activity Cost Pool Cost Assigned Employee training $ Typing and secretarial $ Computing $ Facility rental $ Travel Direct Overhead costs assigned $ Audit Estimated Use of Activity-Based Overhead Rates Activity Cost Pool Cost Drivers Cost Assigned Employee training $ 198275 1802500 $ 0.11 Typing and secretarial 76000 TA A 2500 24320 Computing $ 225600 60000 Facility rental 140000 $ 40 0 Travel Direct 81125 Overhead costs 721000 assigned e Textbook and Media Tax Activity-Based Overhead Rates Cost Assigned $ 121000 $ 0 $ 24320 0 $ 3.76 101520 $ 77000 0 Direct 56000 2 379840
