Polk and Stoneman is a public accounting firm that offers two primary services,
ID: 2417695 • Letter: P
Question
Polk and Stoneman is a public accounting firm that offers two primary services, auditing and tax-return preparation.
(1) Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. $12.25.)
(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. )
Problem 17-5A (Part Level Submission) 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 Expected Use of Cost Drivers Estimated Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Overhead Audit Tax Direct labor dollars Number of reports/forms Number of minutes Number of employees Per expense reports $216,000 76,960 196,940 148,800 81,300 $720,000 $1,800,000 $1,068,000 $732,000 1,700 35,000 18 25,300 2,500 60,000 800 25,000 Direct 56,000Explanation / Answer
Answer:(1)
Answer:(2)
Activity cost pools Estimated overhead Expected use of cost drivers per activity Activity-Based Overhead rates Employee training 216000 1800000 Direct labor dollars 0.12 Per DL $ Typing and secretarial 76960 2500 Reports/forms 30.78 Per report/form Computing 196940 60000 Minutes 3.28 Per minute Facility Rental 148800 40 Employees 3720.00 Per employee Travel 81300 Total 720000