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MAS Case Study

Oak City charges businesses within its police jurisdiction fees for police and fire protection services. Smith's Lumber Company, located beyond Oak City's three-mile jurisdiction limit, claims the fees are excessive. Oak City uses a modified accrual basis of accounting to allocate costs and set fees at the maximum allowed by state law. However, Smith's Lumber argues Oak City has only provided limited services and should only charge costs actually incurred for those services. As an expert witness, the accounting firm would need to critically analyze Oak City and Smith's positions to determine appropriate costs based on services provided while maintaining objectivity and considering all relevant data.

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175 views

MAS Case Study

Oak City charges businesses within its police jurisdiction fees for police and fire protection services. Smith's Lumber Company, located beyond Oak City's three-mile jurisdiction limit, claims the fees are excessive. Oak City uses a modified accrual basis of accounting to allocate costs and set fees at the maximum allowed by state law. However, Smith's Lumber argues Oak City has only provided limited services and should only charge costs actually incurred for those services. As an expert witness, the accounting firm would need to critically analyze Oak City and Smith's positions to determine appropriate costs based on services provided while maintaining objectivity and considering all relevant data.

Uploaded by

Nina
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Questions and requirements

1) Provide a general definition of the term “cost” as used in accounting literature. How is
the term being used in the Oak City case? What is the central cost issue of this case?
- Cost is the initial monetary amount paid to acquire or manufacture a product or
service. In the case of Oak City, this term refers to the amount they charge for
providing police and fire protection services within its jurisdiction. The central cost
issue of this case is to justify the plaintiff’s claim of the excessive fees charged to
them by determining how the accountant allocate its costs.

2) Identify various methods Oak City could use for determining the “cost” of providing
services to the city’s police jurisdiction.
-

3) Which of these methods is the city currently using? Is this method fair to residents of
the city’s police jurisdiction? Is it consistent with State law?
- Oak City used the modified accrual basis of accounting as it considers expenditures
as outflow of financial resources. This method is fair to residents since it
appropriately allocated expenditures and accounted allowable fees based from their
providence of both the police and fire protection services. Mike, also made sure to
follow the maximum rate allowed by law which is one-half the rate of business
license fees levied within the city.

4)
Brief background information about the case

A critique of the city’s position


The city’s position claiming that they have been collecting the fees lawfully contradicted
in that of Smith’s Lumber Company. Initially, the map of Oak City is presented showing that
Smith’s Lumber company is located beyond the police jurisdiction, it is way farther the
corporate limits of three miles which is stipulated by law. Oak City then must charge
businesses to the extent as to what services they have only provided for them. Therefore,
this dismisses Oak City’s claim of levying the appropriate fees from businesses within their
jurisdiction.
An analysis of the costs Oak City should be charging businesses in the police
jurisdiction, including an evaluation of the strengths and weaknesses of the
analysis
- Oak City must only charge costs based on to what services they have extended and
other relevant variable costs they have incurred.
Attachments of supporting calculations and schedules
A list of additional data you believe might be relevant for your argument and
discussion of how the data could be use

5) Alternatively, assume you are an employee of a local accounting firm that has been
hired by Oak City to provide expert testimony in the case. Prepare a report analyzing
the costs the city should charge businesses in the police jurisdiction. Use the same
format as in part 4, but critique the plaintiff’s position.

6) Discuss any ethical issues an accountant should consider in this case. To what extent
do accountants have latitude in supporting positions taken by their clients when
accountants are providing consulting services?
- The accountant must consider all sufficient and relevant data in order to be able to
communicate through an objectifiable reason to its users, especially to those who
would question it.

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