8 BE P4.5A (LO 1, 2, 3, 4), AN Service Lewis and Stark is a public accounting firm that offers two primary services, auditing and tax-retom 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. Estimated Overhead $216,000 Estimated Use of Cost Drivers $1,800,000 Estimated Use of Cost Drivers per Service Audit Tax $1,100,000 $700.000 Activity Cost Pools Employee training Typing and secretarial Computing Facility rental Travel Cost Drivers Direct labor dollars Number of reports/ forms Number of minutes Number of employees Per expense reports 2,500 800 27,000 1.700 33,000 76,200 204,000 142,500 81,300 $720.000 60,000 40 Direct 18 56.000 25,300 b i Instructions a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Lewis and Stark b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity based overhead rates (per cost driver). 2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers c. Comment on the comparative overhead cost for the two services under both traditional costing and ABC