Question

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

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.

 

 

 

 

 

 

 

 

Expected Use of Cost

Drivers per Service

Activity Cost Pools

 

Cost Drivers

 

Estimated Overhead

 

Expected Use of

Cost Drivers

 

Audit

 

Tax

Employee training

 

Direct labor dollars

 

$233,350

 

$1,795,000

 

$1,198,000

 

$597,000

Typing and secretarial

 

Number of reports/forms

 

76,300

 

2,500

 

800

 

1,700

Computing

 

Number of minutes

 

177,050

 

60,000

 

27,000

 

33,000

Facility rental

 

Number of employees

 

150,000

 

40

 

22

 

18

Travel

 

Per expense reports

 

81,300

 

Direct

 

56,000

 

25,300

 

 

 

 

$718,000

 

 

 

 

 

 

                     

 

 



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *