Question

Which three problems might be caused if a client does not clean up billable expenses when some expenses are not really billable? (Select 3 that apply)

-Inaccurate unbilled charge reports

-Customers might be overcharged, making them unhappy

-Billable time will not post to payroll correctly, leading to payroll being overstated

-Job Costing reports will be skewed, leading to inaccurate pricing issues in the future

-Customers might be undercharged, leading to profitability and cash flow issues

Answer 1

Solution:

(b) Customers might be overcharged, making them unhappy

(d) Job Costing reports will be skewed, leading to inaccurate pricing issues in the future

(e) Customers might be undercharged, leading to profitability and cash flow issues

Explanation:

(b) When some expenses that are not billable but still charged to the customer, this can make the customers unhappy as they are being overcharged.

(d) Job costing is all about identifying the expenses related to a particular job. If we error in billable expense, it will defy the whole purpose of job costing and will lead to inaccurate pricing.

(e) Improper charging of billable expense may lead to undercharging of some customers, leading to profitability and cash flow issues