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YYC is an law firm that offers corporate and real estate legal services. The partners for the divisions are concerned that the assignment of overhead
YYC is an law firm that offers corporate and real estate legal services. The partners for the divisions are concerned that the assignment of overhead is inaccurate. The corporate law partners argue for assigning overhead on the basis of % of direct labour dollars, while the real estate partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for analysis and comparison. The following overhead data are collected: Activity Cost Pools Cost Drivers Expected use of Cost Drivers per Service Estimated Overhead Expected use of Cost Corporate Drivers Real Estate Employee training Direct labour dollars $216,000 $1,800,000 $1,000,000 $800,000 Typing & secretarial Number of reports/forms 76,200 2,500 600 1,900 Computing Number of minutes 204,000 60,000 25,000 35,000 Facility rental Number of employees 142,500 40 22 18 Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000 Using traditional product costing as proposed by the corporate partners, compute the total overhead cost assigned to both services (corporate and real estate) of YYC Calculate the activity based overhead rate (per cost driver) for each cost pool. Apply the overhead using Activity -based costing (ABC) to each service based on the use of cost drivers
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