Income Statement, Cost of Services Provided, Service Attributes

Mason, Durant, and Santos (MDS) 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 Santos 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 12,000

Cost of services sold 1,581,000

Beginning direct materials inventory 20,000

Purchases, direct materials 40,000

Direct labor 1,400,000

Overhead 100,000

Administrative expenses 258,000

Selling expenses 65,000

Required: Question Content Area 1. Prepare a statement of cost of services sold. Mason, Durant, and Santos Statement of Cost of Services Sold For the Year Ended June 30

Direct materials used

Direct labor

Overhead

Total service costs added

Add: Beginning work in process

Add: Beginning work in process

Less: Ending work in process

Less: Ending work in process

Cost of services sold

Question Content Area 2. Refer to the statement prepared in Requirement 1. What is the dominant cost? Direct labor Will this always be true of service organizations? No The situation above might be the case because: Service organizations may have large overhead

Question Content Area 3. Assuming that the average fee for processing a return is $860, prepare an income statement for Mason, Durant, and Santos. Mason, Durant, and Santos Income Statement For the Year Ended June 30

Sales

Cost of services sold

Gross margin

Less operating expenses:

Selling expenses

Administrative expenses

Operating income