Question

Hy and van Lamsweerde 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 regarding 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 labour dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for analysis and comparison. The following overhead data are collected: Expected Use of Cost Drivers per Service Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Direct labour dollars Number of reports and forms Number of minutes Number of employees Per expense reports Estimated Overhead $218,366 75,600 204,960 146,960 82,000 727,886 Expected Use of Cost Drivers $1,819,715 2,700 61,000 Audit $943,000 700 25,400 Tax $876,715 2,000 35,600 18 25,700 44 26 Direct 56,300 *(a) Using traditional product costing as proposed by the tax partners, calculate the total overhead cost assigned to both services (audit and tax) of Hy and van Lamsweerde. (Round answers to 0 decimal places, e.g. 1525.) Overhead assigned to audit: " Overhead assigned to tax: $N

Answer 1

solution: Tax Traditional product costing Total overhead cost assigned Audit 377,200 (943000*0.4) 350,686 (876715*0.4) b) Activity Cost Pools Estimated Overhead Employee training Typing and secretarial Computing Facility rental Travel 218,366 75,600 204,960 146,960 82,000 727,886 Expected Use of Cost Drivers per Activity b 1,819,715 Direct labor dollars 2,700 Reports/forms 61,000 Minutes 44 Employees Direct Activity-Based Overhead Rates a/b 0.12 per DL dollar 28.00 per report/form 3.36 per minuite 3,340 per employee Direct 2) Activity Cost Pool E Cost Assigned Tax Activity-Based Overhead Rates Expected Use of Cost Drivers Cost Assigned Audit xpected Use of Activity-Based Cost Drivers Overhead Rates a 943000 700 25400 c=a*b Employee training Typing and secretarial Computing Facility rental Travel Overhead costs assigned 0.12 28.00 3.36 3,340 113,160 19,600 85,344 86,840 56,300 361,244 876715 2000 35600 18 25700 Direct 0.12 28.00 3.36 3,340 f=de 105,206 56,000 119,616 60,120 25700 366,642 26 56300 Direct Employee training Typing and secretarial Computing Facility rental Travel Non-Value Added Value Added Value Added Non-Value Added Non-Value Added