If the hourly professional rate is set based, in part, on the desire to cover indirect costs,

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If the hourly professional rate is set based, in part, on the desire to cover indirect costs, the rate will be higher than if it is only based on the direct costs of professionals. However, Larson & Company needs to set its rates high enough to cover all of its costs and generate a profit.
If some clients use more supplies than others, the current billing system will not accurately reflect the fact that these clients are slightly more costly for Larson & Company to serve. However, given the overall cost of providing CPA services to clients, costs relating to office supplies, even for clients who require an above average level of supplies, are insignificant.
While employees at Larson & Company could exert the effort necessary to directly trace the costs of office supplies to each client, the cost of doing so would outweigh the benefit. In addition, even clients who use very few supplies would likely be turned off by being “nickeled and dimed” with charges for print jobs, faxes, and other office supply costs. In the end, just because a cost can be directly traced to a cost object, that doesn’t mean a cost should be directly traced to a cost object.

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Financial And Managerial Accounting

ISBN: 9780357714041

16th Edition

Authors: Carl S. Warren, Jefferson P. Jones, William Tayler

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