Question

Problem 5-41A (Part Level Submission)

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		Cost Drivers			Estimated Overhead				Expected Use of Cost Drivers				Audit		Tax
Employee training		Direct labour dollars				$224,730				$1,872,753			$996,000		$876,753
Typing and secretarial		Number of reports and forms				82,795				2,900			700		2,200
Computing		Number of minutes				212,936				61,900			26,000		35,900
Facility rental		Number of employees				145,740				42			22		20
Travel		Per expense reports				82,900				Direct			56,700		26,200
						749,101

1. Using activity-based costing, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver). (Round answers to 2 decimal places, e.g. 15.25.)

		Activity-based overhead rates
Employee training		$	per DL dollar
Secretarial		$	per report/form
Computing		$	per minute
Facility rental		$	per employee
Travel		$

2. Prepare a schedule assigning each activity’s overhead cost pool to each service based on the use of the cost drivers. (Round answers to 0 decimal places, e.g. 1525.)

		Audit		Tax
Training		$		$
Secretarial
Computing
Rent
Travel (Direct)
Total overhead assigned		$		$

Answer 1

1. Activity-based overhead rates = Estimated overhead/Expected use of cost drivers

	Activity-based overhead rates
Employee training	0.12	per DL dollar
Secretarial	28.55	per report/form
Computing	3.44	per minute
Facility rental	3470.00	per employee
Travel

Working:

	Activity-based overhead rates
Employee training	=224730/1872753	per DL dollar
Secretarial	=82795/2900	per report/form
Computing	=212936/61900	per minute
Facility rental	=145740/42	per employee

2.

	Audit	Tax
Training	119520	105210
Secretarial	19985	62810
Computing	89440	123496
Rent	76340	69400
Travel (Direct)	56700	26200
Total overhead assigned	361985	387116

Working:

	Audit	Tax
Training	=996000*0.12	=876753*0.12
Secretarial	=700*28.55	=2200*28.55
Computing	=26000*3.44	=35900*3.44
Rent	=22*3470	=20*3470
Travel (Direct)	56700	26200