Problem 17-5A (Part Level Submission) Expected Use of Cost Drivers per Service A
ID: 2424871 • Letter: P
Question
Problem 17-5A (Part Level Submission)
Expected Use of Cost
Drivers per Service
Activity Cost Pools
Cost Drivers
Estimated
Overhead
Expected Use of
Cost Drivers
Audit
Tax
$200,475
$1,822,500
$1,068,000
$754,500
76,870
2,500
800
1,700
227,355
60,000
25,000
35,000
143,000
40
22
18
81,300
Direct
56,000
25,300
$729,000
(a)
Audit
Tax
Activity Cost Pools
Estimated
Overhead
Expected Use of
Cost Drivers per Activity
Activity-Based
Overhead Rates
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
Direct
Direct
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
Activity Cost Pools
Cost Drivers
Estimated
Overhead
Expected Use of
Cost Drivers
Audit
Tax
Employee training Direct labor dollars$200,475
$1,822,500
$1,068,000
$754,500
Typing and secretarial Number of reports/forms76,870
2,500
800
1,700
Computing Number of minutes227,355
60,000
25,000
35,000
Facility rental Number of employees143,000
40
22
18
Travel Per expense reports81,300
Direct
56,000
25,300
$729,000
Explanation / Answer
a.
b. Activity based costing:
c. ABC
Product costing Direct Labor Overhead assinged (40% of direct labor) Audit 1,068,000 427,200 Tax 754,500 301,800 Total 1,822,500 729,000