Tilley Professional Services is composed of two separate divisions: (1) tax services as provided by the tax department and (2) auditing services as provided by the audit department. Each department has numerous clients. Engagement with each individual client is a separate service (i.e., product) and each department has several engagements in each period. Cost items of the firm follow: Salary of the partner in charge of the audit department Salary of the managing partner of the firm Cost of office supplies such as paper, pencils, erasers, etc. Depreciation of computers used in the tax department License fees of the firm Professional labor for a tax engagement Office assistant labor supporting both departments Professional labor for an audit engagement Depreciation of computers used in the audit department Salary of the partner in charge of the tax department Travel expenditures for an audit engagement Page 194 Required a. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual engagements (audit engagements or tax engagements). b. Identify each cost as being a direct or indirect cost assuming the cost objects are the two departments. c. Identify each cost as being a direct or indirect cost assuming the cost object is Tilley Professional Services as a whole.
Tilley Professional Services is composed of two separate divisions: (1) tax services as provided by the tax department and (2) auditing services as provided by the audit department. Each department has numerous clients. Engagement with each individual client is a separate service (i.e., product) and each department has several engagements in each period. Cost items of the firm follow: Salary of the partner in charge of the audit department Salary of the managing partner of the firm Cost of office supplies such as paper, pencils, erasers, etc. Depreciation of computers used in the tax department License fees of the firm Professional labor for a tax engagement Office assistant labor supporting both departments Professional labor for an audit engagement Depreciation of computers used in the audit department Salary of the partner in charge of the tax department Travel expenditures for an audit engagement Page 194 Required a. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual engagements (audit engagements or tax engagements). b. Identify each cost as being a direct or indirect cost assuming the cost objects are the two departments. c. Identify each cost as being a direct or indirect cost assuming the cost object is Tilley Professional Services as a whole.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 4-1B Direct versus indirect costs
Tilley Professional Services is composed of two separate divisions: (1) tax services as provided by the tax department and (2) auditing
services as provided by the audit department. Each department has numerous clients. Engagement with each individual client is a separate
service (i.e., product) and each department has several engagements in each period. Cost items of the firm follow:
Salary of the partner in charge of the audit department
Salary of the managing partner of the firm
Cost of office supplies such as paper, pencils, erasers, etc.
Depreciation of computers used in the tax department
License fees of the firm
Professional labor for a tax engagement
Office assistant labor supporting both departments
Professional labor for an audit engagement
Depreciation of computers used in the audit department
Salary of the partner in charge of the tax department
Travel expenditures for an audit engagement
Page 194
Required
a. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual engagements (audit engagements or tax
engagements).
b. Identify each cost as being a direct or indirect cost assuming the cost objects are the two departments.
c. Identify each cost as being a direct or indirect cost assuming the cost object is Tilley Professional Services as a whole.
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Step 1: Define a direct and indirect labor:
VIEWStep 2: a. Identifying direct and indirect costs for individual engagements
VIEWStep 3: b. Identifying direct and indirect costs for the two departments
VIEWStep 4: c. Identifying direct and indirect costs for Tilley Professional Services as a whole
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