*Problem 185A

Polk and Stoneman 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 activitybased 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.

Expected Use of Cost

Drivers per Service

Activity Cost Pools	Cost Drivers	Estimated Overhead	Expected Use of Cost Drivers	Audit	Tax
Employee training	Direct labor dollars	$235,300	$1,810,000	$1,120,000	$690,000

Typing and secretarial Number of reports/forms 76,750 2,500 800 1,700

Computing Number of minutes 182,750 60,000 25,000 35,000

Facility rental Number of employees 147,900 40 22 18

Audit $____________________			Tax$________________
		$
$

Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Polk and Stoneman.

(2) Prepare a schedule assigning each activitys overhead cost pool to each service based on the use of the cost drivers. (Round overhead rate to 2 decimal p and cost assigned to 0 decimal places, e.g. $2,500. )

The last one is Cost Assigned for the end column for the last section.