Answer Happy

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. Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Direct labor dollars Number of reports/forms Number of minutes Number of employees Per expense reports Estimated Overhead $213,000 76,400 193,200 146,000 81,400 $710,000 Estimated Use of Cost Drivers $1,775,000 2,500 60,000 40 Direct Estimated Use of Cost Drivers per Service Audit $1,196,000 $579,000 800 27,000 22 56,000 Tax 1,700 33,000 18 25,300
Using traditional product costing as proposed by the tax partners, compute the total overhead cost a (audit and tax) of Lewis and Stark. Total overhead cost assigned eTextbook and Media Activity Cost Pools Employee training Typing and secretarial Using activity-based costing, prepare a schedule showing the computations of the activity-based ove (Round overhead rates to 2 decimal places, e.g. 12.25.) Computing Facility rental Travel Audit Estimated Overhead $ +A LA Tax Expected Use of Cost Drivers per Activity Direct Direct labor dollars Reports/forms Minutes Employees
$ LA $ LA tA $ $ Activity-Based Overhead Rates Direct per DL dollar per report/form per minute per employee
Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. (Round overhead rates to 2 decimal places, e.g. 12.25 and cost assigned to O decimal places, e.g. 2,500.) Activity Cost Pool Employee training Typing and secretarial Computing Facility rental Travel Overhead costs assigned $ Estimated Use of Cost Drivers EA +A +A Audit Activity-Based Overhead Rates Direct EA +A Cost Assigned
ch activity's overhead cost pool to each service based on the use of the cost drivers. (Round 5, e.g. 12.25 and cost assigned to O decimal places, e.g. 2,500.) en Estimated Use of Cost Drivers LA LA VA Tax Activity-Based Overhead Rates Direct LA $ Cost Assigned