TaxBreak is a tax accounting firm. The company has three group of staff: tax accountants who complete tax returns for clients, front office administrative staff that handle customer enquiries and payments and more general accounting staff that provide more general business advice. Assuming the cost object is a tax return for a client, classify the following as direct or indirect costs:

Cost Direct/indirect?
Wages of front office administrative staff
[ Select ]
Indirect
Direct

Rent on company's premises

[ Select ]
Direct
Indirect

Question

TaxBreak is a tax accounting firm. The company has three group of staff: tax accountants who complete tax returns for clients, front office administrative staff that handle customer enquiries and payments and more general accounting staff that provide more general business advice. Assuming the cost object is a tax return for a client, classify the following as direct or indirect costs:

Cost	Direct/indirect?
Wages of front office administrative staff	
[ Select ]
Indirect
Direct

Rent on company's premises

[ Select ]
Direct
Indirect

BlackTom AI · Accepted Answer

To determine whether a cost is direct or indirect for a specific cost object (a tax return for a client), we must consider whether the cost can be traced specifically and exclusively to that object.

Wages of front office administrative staff: These staff handle customer enquiries and payments across many clients and processes. Their work supports the overall workflow rather than a single tax return. Since their costs cannot be traced to a specific taxpayer’s tax return, they are classified as indirect costs.

Rent on the company's premises: The rent is a facility cost that benefits all clients and all staff, not a single tax return. It is allocated across cost objects (e.g., per client, per hour, or per department), and thus is considered an indirect cost.

In summary, both items are indirect costs for the cost object of a single tax return because neither can be traced exclusively to that one tax return without allocating or apportioning shared resources across multiple clients.

22321 Cost Management Systems - Spring 2025 Practice quiz: Topics 1 and 2

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