Lewis and stark is a public accounting firm that offers two primary services, au

Question

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 the direct labor dollars, while the audit partners argue for implementing activity based costing. The partners agree to use next years budgeted data for purpose of analysis and comparison. The following overhead data are collected to develop the comparison.
Problem 18-5A Lewis and Stark is a public accounting Arm that offers two primary services, audting and tax-return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount t bottom line The area of conterton is the assignment of overhead me tax partners orgue for aseg ing Gvertead on the basis of 40% of direct labor dollars, while the audt 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 companson. Expected Use of Cost Drivers per Service Expect head Cost Drivers Activity Cost Pools Employee training Typing and secretanisl Cost Drivers Estimated Over Direct labor Number of reportsu/tforms $219,300 76,100 210,300 144,000 81,300 731,000 1,827,500 $1,198,000 $529,500 B0O 1,700 60,00027,00033,00 18 Direct 56,000 25,300 2,500 Number of minutes Number of employees Per expense reports facility rental Using trndtiona práct cost ng as poposed by the tax partners, compute the best o.rhead ost bu gred to both berwiehia·g ur) dle-s and San Tsesl overhead coet assigned q Using activity-based costing. prepare a schedule showing the computations of the a overtiead rabes (per cost olver), (Round overhead rate to 2 declmal places, eg. 12.25) Expected Use of Cost Drivers per Activity Activity Based Activity Cost Pools Employte training Trping and secretarial Computing Facility rental Direct Prepare a schedule ansigning each adtivtys overhead cost pool to each service sased on the sae of te c places, e.g 2.s00) rivers overhead rate to 3 decimal places, g 12.25 and cost assigned fo O decimal

Explanation / Answer

Audit Tax a) total overhead cost assigned 479200 251800 (731000/1,827,500)= 0.4 Audit              = .4*1198,000 479200 Tax                = .4*629,500= 251800 Estimated Expected Activity b-1) overhead use of based Activity cost pools cost dr overhead per activity rates Employee training 219,300 1,827,500 Direct labor dollars 0.12 per DL dollar Typing and secretarial 76,100 2,500 Report/forms 30.44 per report/form computing 210,300 60,000 Minutes 3.51 per minute Facility rental 144,000 40 Employees 3600 per employee Travel 81,300 Direct Direct 731,000 b-2) Audit                    Tax Expected Activity Cost Expected Activity Cost use of based Assigned use of based Assigned Activity cost pools cost dr overhead cost dr overhead per activity rates per activity rates Employee training 1,198,000 0.12 143760 629,500 0.12 75540 Typing and secretarial 800 30.44 24352 1,700 30.44 51748 computing 27,000 3.51 94635 33,000 3.51 115665 Facility rental 22 3600 79200 18 3600 64800 Travel 56,000 Direct 56,000 25,300 Direct 25,300 overhead costs assigned 397947 333053

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