Reference no: EM13585961

Polk and Stoneman 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		$269,625		$1,797,500		$1,100,000		$697,500
Typing and secretarial		Number of reports/forms		76,840		2,500		800		1,700
Computing		Number of minutes		149,135		60,000		25,000		35,000
Facility rental		Number of employees		142,100		40		22		18
Travel		Per expense reports		81,300		Direct		56,000		25,300
				$719,000

(1) Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates. (Round overhead rate to 2 decimal places, e.g. $12.25.)

Activity Cost Pools		Estimated Overhead		Expected Use of Cost Drivers per Activity			Activity-Based Overhead Rates
Employee training		$			Direct labor dollars		$	per DL dollar
Typing and secretarial					Reports/forms		$	per report/form
Computing					Minutes		$	per minute
Facility rental					Employees		$	per employee
Travel				Direct			Direct
		$

(2) Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. (Round overhead rate to 2 decimal places, e.g. $12.25 and cost assigned to 0 decimal places, e.g. $2,500. )

Audit

Tax

Activity Cost Pool

Expected Use of Cost Drivers

Activity-Based Overhead Rates

Cost Assigned

Expected Use of Cost Drivers

Activity-Based Overhead Rates

Cost Assigned

Employee training

$

$

$

$

$

$

Typing and secretarial

$

$

Computing

$

$

Facility rental

$

$

Travel

$

Direct

$

Direct

Overhead costs assigned

$

$