P17.5 (L. 1. 1 ,2,3,4),AN 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 scrvicc lincs as to who is contributing the grcatcr amount to the bottom linc. The arca of contention is the assignment of ovcrhcad. The tax parmers arguc for assigning overhcad on the basis of 40% of direct labor dollars, while the audit partmers 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. Instructions 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. b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates 'per cost driver). (Hint: As a result of breaking out travel costs as a separate cost pool, travel costs can now be traced directly to services provided. Thus, an overhead rate is not needed.) 2. Prepare a schedule assigning each activity's overhead cost pool to each accounting service based on the use of the cost drivers. b. (2) Cost assigned-Tax $337,441 c. Comment on the comparative overhead cost for the two services under both traditional costing and ABC. c. Difference -Audit $57,441 P17.5 (L. 1. 1 ,2,3,4),AN 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 scrvicc lincs as to who is contributing the grcatcr amount to the bottom linc. The arca of contention is the assignment of ovcrhcad. The tax parmers arguc for assigning overhcad on the basis of 40% of direct labor dollars, while the audit partmers 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. Instructions 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. b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates 'per cost driver). (Hint: As a result of breaking out travel costs as a separate cost pool, travel costs can now be traced directly to services provided. Thus, an overhead rate is not needed.) 2. Prepare a schedule assigning each activity's overhead cost pool to each accounting service based on the use of the cost drivers. b. (2) Cost assigned-Tax $337,441 c. Comment on the comparative overhead cost for the two services under both traditional costing and ABC. c. Difference -Audit $57,441