Service firms generally do not use a lot of direct materials, and they do incur indirect costs that cannot be traced to specific clients or accounts. Therefore, they assign indirect costs to individual clients or accounts based on an allocation base such as billable hours. Process costing is not typically used in service firms.

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Service Firms

Question 105

Multiple Choice

Service firms:

A) tend to use a lot of direct materials in addition to billable hours.
B) tend to incur few indirect costs that cannot be traced to specific clients or accounts.
C) assign indirect costs to individual clients or accounts based on an allocation base such as billable hours.
D) use process costing to assign costs to individual clients or accounts.

Correct Answer: