? Chapter 18 WileyPLUS Chegg Study Chegg Study Frequently Asked Q Contact Us Wey

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? Chapter 18 WileyPLUS Chegg Study Chegg Study Frequently Asked Q Contact Us Weygandt, Financial & Managerial Accounting, 2e PRINTER VERSION BACK NEXT ASSIGNMENT RESOURCES Problem 18-5A Assignments 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. Exercise 18- Excrcisc 18-4 Exercise 18-9 Expected Use of Cost Drivers per Service Review Score Expected Use of Activity Cost Pools Employee training Typing and secretaria Number of reports/forms Computing Facility rental Travel Estimated Overhead $212,400 76,000 198,300 140,000 81,300 $708,000 Cost Drivers Cost DriversAudit Tax Direct labor dollars $1,770,000 $1,100,000 $670,000 1,700 27,000 33,000 18 56,000 25,300 2,500 60,000 800 Number of minutes Number of employees Per expense reports 40 Direct Your answer is incorrect. Try again. 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 89 65 LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR PROBLEM Your answer is incorrect. Try again.

Explanation / Answer

Solution a:

Traditional overhead rate (Direct labor dollars) = Estimated overhead / Direct labor dollars = $708,000 / $1,770,000 = 40%

Overhead assigned to Audit services = $1,100,000*40% = $440,000

Overhead assigned to Tax services = $670,000*40% = $268,000

Solution b:

Solution c:

Determination of activity rate for each activity - Lewis and Stark Activity cost pools Estimated Overhead Cost Cost Driver Expected use of cost drivers Activity Rate Employee Training $212,400.00 Direct labor dollars 1770000 $0.12 Typing and Secretarial $76,000.00 Nos of reports/forms 2500 $30.40 Computing $198,300.00 Nos of minutes 60000 $3.31 Facility Rental 140000.00 Nos of employees 40 $3,500.00 Travel $81,300.00 Per Expense Reports Direct Direct Total $708,000.00

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