P4.5A (LO 1, 2, 3, 4), AN Service 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. Assign overhead costs to services using traditional costing and ABC: compute overhead rates and unit costs: compare results. Estimated Use Estimated Use of of Cost Drivers Estimated per Service Activity Cost Pools Cost Drivers Overhead Cost Drivers Audit Employee training Direct labor dollars $216,000 $1,800,000 $1,100,000 Tax $700,000 Typing and Number of reports/ secretarial forms 76,200 2,500 800 Computing Number of minutes 204,000 60,000 27,000 Facility rental Number of employees 142,500 40 Travel Per expense reports 81,300 Direct 22 56,000 1,700 33,000 18 25,300 $720,000 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 b. (2) Cost assigned-Tax) overhead rates (per cost driver). 2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. e. Comment on the comparative overhead cost for the two services under both traditional costing and ABC. $337,441 c. Difference-Audit $57,441