Polk and Stoneman _ABC Costing

 

AP17-5A (a-c)Polk and Stoneman is a public 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 PoolCost DriverEstimated Overhead Expected Use of Cost DriversExpected Use of Cost Drivers per ServiceAuditTaxEmployee trainingDirect labor dollars$216,800 $1,807,275 $1,012,074 $795,201 Typing and secretarialNumber of reports/forms 76,210 2,500 600 1,900 ComputingNumber of minutes208,100 60,000 25,000 35,000 Facility rentalNumber of employees140,500 40 22 18 TravelPer expense reports81,300 Direct 56,000 25,300   $722,910        

  

Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Polk and Stoneman. Overhead assigned to audit$[removed]Overhead assigned to tax$[removed] 

      

(1) Using activity-based costing compute the activity-based overhead rates (per cost driver). (2) Complete the schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Round the activity-based overhead rates to 3 decimal places, e.g. 2.250 and cost assigned to 0 decimal places, e.g. 12,500. Note due to rounding total cost assigned may be slightly different than from above.)Activity Cost PoolsAuditTaxExpected Use of Cost DriversActivity-Based Overhead RateCost AssignedExpected Use of Cost DriversActivity-Based Overhead RatesCost AssignedEmployee training$[removed]$[removed]$[removed]$[removed]$[removed]$[removed]Typing & Secretarial[removed][removed][removed][removed][removed][removed]Computing[removed][removed][removed][removed][removed][removed]Facility Rental[removed][removed][removed][removed][removed][removed]Travel[removed]Direct[removed][removed]Direct[removed]   Total cost assigned $[removed]  $[removed] 

  

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