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Problem 18-5A (Part Level Submission) Lewis and Stark is a public accounting firm...

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Accounting

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Problem 18-5A (Part Level Submission) Lewis and Stark 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 Estimated Overhead Expected Use of Cost Drivers Activity Cost Pools Employee training Typing and secretarial Number of reports forms Computing Facility rental Travel Cost Drivers Audit Tax Direct labor dollars $216,000 76,200 204,000 142,500 81,300 $720,000 $1,800,000 $1,100,000 $700,000 1,700 27,000 33,000 18 56,000 25,300 2,500 60,000 40 Direct 900 Number of minutes Number of employees Per expense reports

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