Income Statement, Cost of Services Provided, Service Attributes

Mason, Durant, and Westbrook (MDW) is a tax services firm. The firm is located in Oklahoma City and employs 15 professionals and eight staff. The firm does tax work for small businesses and well-to-do individuals. The following data are provided for the last fiscal year. (The Mason, Durant, and Westbrook fiscal year runs from July 1 through June 30.)

Returns processed	3,000
Returns in process, beginning of year	$43,000
Returns in process, end of year	14,000
Cost of services sold	1,578,000
Beginning direct materials inventory	20,000
Purchases, direct materials	40,000
Direct labor	1,400,000
Overhead	100,000
Administrative expenses	255,000
Selling expenses	65,000

Required:

1. Prepare a statement of cost of services sold.

Mason, Durant, and Westbrook
Statement of Cost of Services Sold
For the Year Ended June 30
	$
	$
Cost of services sold	$

2. Refer to the statement prepared in Requirement 1. What is the dominant cost?

Will this always be true of service organizations?

The situation above might be the case because:

3. Assuming that the average fee for processing a return is $840, prepare an income statement for Mason, Durant, and Westbrook.

Mason, Durant, and Westbrook
Income Statement
For the Year Ended June 30
		$
		$
Less operating expenses:
	$
		$

4. How does the amount of total units factor into the calculation of average cost?

$ per return

How do the differences between services and tangible products affect the ability of MDW to use the last years average cost of preparing a tax return in budgeting the cost of tax return services to be offered next year?