Question

Southwoods  is  a  medium-sized  accounting  firm  that  provides  services  in  the areas of audit, taxation and investment advice. Outline the value chain for Southwoods and apply the relevant classifications to the costs listed below. (One or more classification may be appropriate for each cost item.)

Cost classifications:

(a) Research and development.

(b) Design.

(c) Production/delivery.

(d) Marketing.

(e) Customer support.

(f) Fixed costs.

(g) Variable costs (identify cost driver).

(h) Professional labour.

(i) Overheads.

Costs:

1 Salaries of staff who work directly on audit assignments.

2 Salary of the financial planning consultant who provides investment advice to retirees.

3 Salary of a research assistant who investigates and develops new financial planning products.

4 Salary of the receptionist.

5 Costs of advertising financial planning products.

6 Cost of telephone calls. These relate primarily to follow-up calls to taxation clients.

7 Depreciation on photocopiers used in the provision of all services.

8 Cost of preprinted stationery used in the preparation of taxation returns.

9 Salaries of staff who are directly involved in the preparation of taxation returns.

10 Depreciation on office computing equipment used in the provision of all services.

Answer 1

Southwoods
	Cost	Cost classifications:
1	Salaries of staff who work directly on audit assignments.	Production/delivery
2	Salary of the financial planning consultant who provides investment advice to retirees.	Professional labour
3	Salary of a research assistant who investigates and develops new financial planning products.	Research and development
4	Salary of the receptionist.	Fixed costs
5	Costs of advertising financial planning products.	Marketing
6	Cost of telephone calls. These relate primarily to follow-up calls to taxation clients.	Fixed costs
7	Depreciation on photocopiers used in the provision of all services.	Fixed costs.
8	Cost of preprinted stationery used in the preparation of taxation returns.	Variable costs (identify cost driver)
9	Salaries of staff who are directly involved in the preparation of taxation returns.	Production/delivery
10	Depreciation on office computing equipment used in the provision of all services.	Fixed costs.