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Polk and Stoneman 216000

Price: $2.50

Polk and Stoneman 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.

(a) Using traditional product costing as proposed by the tax partners, compute the total
overhead cost assigned to both services (audit and tax) of Polk and Stoneman.
(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) Classify each of the activities as a value-added activity or a non–value-added activity.

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