Rice and Conwell is a public accounting firm that offers two primary services, a
ID: 2354573 • Letter: R
Question
Rice and Conwell 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 war's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison. Instructions Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Rice and Conwell. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. Classify each of the activities as a value-added activity or a non-value-added activity.Explanation / Answer
(a) Computation of assigned overhead under traditional costing (“direct labor dollars” appears in the first line of the schedule of overhead data):
Predetermined overhead rate X direct labor dollars
Overhead assigned to audit: .40 X $1,000,000 = $400,000
Overhead assigned to tax: .40 X $800,000 = $320,000
(b)
(1) Computation of activity-based overhead rates:
Estimated
Expected Use of
Activity-Based
Activity Cost Pools
Overhead
÷
Cost Drivers per Activity
=
Overhead Rates
Employee training
$216,000
$1,800,000 Direct labor dollars
$.12 per DL dollar
Typing and secretarial
76,200
2,500 Reports/forms
$30.48 per report/
Computing
204,000
60,000 Minutes
$3.40 per minute
Facility rental
142,500
40 Employees
$3,562.50 per employee
Travel
81,300
Direct
Direct
$720,000
(2) Assignment of overhead to audit and tax services:
AUDIT TAX
Expected
Activity-
Expected
Activity-
Use of
Based
Use of
Based
Cost
Overhead
Cost
Cost
Overhead
Cost
Activity Cost Pools
Driver
x
Rate
=
Assigned
Driver
x
Rate
=
Assigned
Employee training
$1,000,000
$0.12
$120,000
$800,000
$0.12
$96,000
Typing and secretarial
600
$30.48
18,288
1,900
$30.48
57,912
Computing
25,000
$3.40
85,000
35,000
$3.40
119,000
Facility rental
22
$3,562.50
78,375
18
$3,562.50
64,125
Travel
56,000
Direct
56,000
25,300
Direct
25,300
Overhead costs
assigned
$357,663
$362,337
(c)
Activity
Value-Added vs. Non-Value-Added
Employee training
Non-value-added
Typing and secretarial
Value-added
Computing
Value-added
Facility rental
Non-value-added
Travel
Non-value-added
Estimated
Expected Use of
Activity-Based
Activity Cost Pools
Overhead
÷
Cost Drivers per Activity
=
Overhead Rates
Employee training
$216,000
$1,800,000 Direct labor dollars
$.12 per DL dollar
Typing and secretarial
76,200
2,500 Reports/forms
$30.48 per report/
Computing
204,000
60,000 Minutes
$3.40 per minute
Facility rental
142,500
40 Employees
$3,562.50 per employee
Travel
81,300
Direct
Direct
$720,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.