Concept explainers
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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