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 (a) Cost Drivers Direct labor dollars Number of reports/forms Number of minutes Number of employees Per expense reports Total overhead cost assigned $ Estimated Overhead Audit $195,525 76,200 216,000 142,000 81,275 $711,000 Estimated Use of Cost Drivers $1,777,500 2,500 60,000 40 Trace directly Tax Use of Cost Drivers per Service Audit $1,150,000 800 27,000 22 56,000 Tax $627,500 1,700 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. 33,000 18 25,275
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 (a) Cost Drivers Direct labor dollars Number of reports/forms Number of minutes Number of employees Per expense reports Total overhead cost assigned $ Estimated Overhead Audit $195,525 76,200 216,000 142,000 81,275 $711,000 Estimated Use of Cost Drivers $1,777,500 2,500 60,000 40 Trace directly Tax Use of Cost Drivers per Service Audit $1,150,000 800 27,000 22 56,000 Tax $627,500 1,700 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. 33,000 18 25,275
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
(a)
Cost Drivers
Direct labor dollars
Number of reports/forms
Number of minutes
Number of employees
Per expense reports
Total overhead cost assigned $
Estimated Overhead
Audit
$195,525
76,200
216,000
142,000
81,275
$711,000
Estimated Use of
Cost Drivers
$1,777,500
2,500
60,000
40
Trace directly
Use of Cost
Drivers per Service
Tax
Audit
$1,150,000
800
27,000
22
56,000
Tax
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.
$627,500
1,700
33,000
18
25,275
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