Problem 4-5A 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 Expected Use of Cost Drivers per Service Estimated Overhead Expected Use of Cost Drivers Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Audit Tax Direct labor dollars Number of reports/forms Number of minutes Number of employees Per expense reports $250,250 76,800 161,650 145,000 81,300 $715,000 $1,787,500 $1,172,000 $615,500 1,700 27,000 33,000 18 25,300 2,500 60,000 40 Direct 800 56,000 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 rate to 2 decimal places, e.g. 12.25.) Estimated Overhead Expected Use of Cost Drivers per Activity Activity-Based Overhead Rates Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel 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 rate to 2 decimal places,e.g 12.25 and cost assigned to 0 decimal places, e.g. 2,500.) Audit Tax Expected Use of Activity-Based Expected Use of Activity-Based Activity Cost Poo Cost Drivers Overhead Rates Cost Assigned Cost Drivers Overhead Rates Cost Assigned Employee training Typing and secretarial Computing Facility rental Travel Direct Direct Overhead costs assigned