Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Chapter 4, Problem 4.5AP
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
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.
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Students have asked these similar questions
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.Assign overhead costs to services using traditional costing and ABC; compute overhead rates and unit costs; compare results.
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…
CPA Services - Profitability Analysis
Hy and Lowe is a public accounting firm that offers two primary services, auditing and tax preparation. A disagreement has developed between the partners who head up the two services as to who is contributing the most to firm profitability. The area of contention is the assignment of overhead. The tax partner argues for assigning overhead on the basis of 40% of direct labor cost. The audit partner argues for implementing activity‐based costing.
The partners agree to use next year's budget data for analysis and comparison. The following data are collected:
Audit
Tax
Revenues
2,300,000
1,200,000
Employee labor
1,000,000
800,000
Activity
Cost Driver
Estimated Overhead
Employee training
direct labor cost
$ 216,000
Typing and secretarial
number reports/forms
76,200
Computing
number of minutes
204,000
Facility rental
number of employees
142,500
Travel
per expense reports
81,300
Total
$ 720,000
Expected activity…
Hobart, Evans, and Nix is a small law firm that contains 10 partners and 12 support persons. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments - the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments to its clients. At the beginning of the year, the firm's management made the following estimates for the year:Department Research and Documents Litigation Research-hours 31,000 — Direct attorney-hours 11,800 23,400 Legal forms and supplies £ 21,100 £ 6,700 Direct lawyer cost 593,300 1,186,700 Departmental overhead cost 930,000 474,680 The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct lawyer cost.The costs charged to each client are made up of three elements: legal forms and supplies used, direct lawyer…
Chapter 4 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 4 - Under what conditions is direct labor a valid...Ch. 4 - What has happened in recent industrial history to...Ch. 4 - In an automated manufacturing environment, what...Ch. 4 - What is generally true about overhead allocation...Ch. 4 - What are the principal differences between...Ch. 4 - What is the formula for computing activity-based...Ch. 4 - What steps are involved in developing an activity-...Ch. 4 - Prob. 8QCh. 4 - What is an activity cost pool?Ch. 4 - Prob. 10Q
Ch. 4 - Prob. 11QCh. 4 - What is the formula for assigning activity cost...Ch. 4 - What are the benefits of activity-based costing?Ch. 4 - What are the limitations of activity-based...Ch. 4 - Under what conditions is ABC generally the...Ch. 4 - Prob. 16QCh. 4 - Prob. 17QCh. 4 - Prob. 18QCh. 4 - Prob. 19QCh. 4 - Prob. 20QCh. 4 - Prob. 4.1BECh. 4 - Finney Inc. has conducted an analysis of overhead...Ch. 4 - Splash Co. identifies the following activities...Ch. 4 - Mason Company manufactures four products in a...Ch. 4 - Morgana Company identifies three activities in its...Ch. 4 - Weisman, Inc. uses activity-based costing as the...Ch. 4 - Spud, Inc. a manufacturer of gourmet potato chips,...Ch. 4 - Prob. 4.8BECh. 4 - Pine and Danner is an architectural firm that is...Ch. 4 - Prob. 4.10BECh. 4 - Fixlt, Inc. operates 20 injection molding machines...Ch. 4 - Prob. 4.12BECh. 4 - Indicate whether the following statements are true...Ch. 4 - Compute activity-based overhead rates and assign...Ch. 4 - Adamson Company manufactures four lines of garden...Ch. 4 - Ready Ride is a trucking company. It provides...Ch. 4 - Saddle Inc. has two types of handbags: standard...Ch. 4 - Ayala Inc. has conducted the following analysis...Ch. 4 - EcoFabrics has budgeted overhead costs of 945,000....Ch. 4 - Altex Inc. manufactures two products: car wheels...Ch. 4 - Perdon Corporation manufactures safeslarge mobile...Ch. 4 - Santana Corporation manufactures snowmobiles in...Ch. 4 - Rojas Vineyards in Oakville, California, produces...Ch. 4 - Wilmington, Inc. manufactures five models of...Ch. 4 - Air United, Inc. manufactures two products:...Ch. 4 - Kragan Clothing Company manufactures its own...Ch. 4 - Health 'R Us, Inc., uses a traditional product...Ch. 4 - Santana Corporation manufactures snowmobiles in...Ch. 4 - William Mendel Sons, Inc. is a small...Ch. 4 - Venus Creations sells window treatments (shades,...Ch. 4 - Snap Prints Company is a small printing and...Ch. 4 - Lasso and Markowitz is a law firm that is...Ch. 4 - Manzeck Company operates a snow-removal service....Ch. 4 - Combat Fire, Inc. manufactures steel cylinders and...Ch. 4 - Prob. 4.2APCh. 4 - Shaker Stairs Co. designs and builds factory-made...Ch. 4 - Prob. 4.4APCh. 4 - Lewis and Stark is a public accounting firm that...Ch. 4 - CURRENT DESIGNS As you teamed in the previous...Ch. 4 - Prob. 4.1BYPCh. 4 - Prob. 4.2BYPCh. 4 - Curtis Rich, the cost accountant for Hi-Power...Ch. 4 - As discussed in the chapter, the principles...
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