7-2 Search Corp. (SC) provides executive search services to a variety of clients

Question

7-2 Search Corp. (SC) provides executive search services to a variety of clients on a fee-for-service basis. A team of two human resource professionals is assigned to each client for each position SC is hired to fill. The professionals meet with the clients to establish what particular skills, abilities, and characteristics the ideal candidate should have; supervise meetings of the client's internal search team; advertise broadly; identify a list of potential candidates; contact a variety of associates across the country to expand this list, receive applications and dossiers;, help the client develop a short list, and oversee the interview and selection process. The human resource professionals are backed up by administrative assistants who work on 10 to 15 different client files at the same time, and by an executive team who provide strategic direction, and marketing, information systems, finance, and accounting capability to SC's operations. SC rents five floors of a major commercial building in a prime downtown location

Explanation / Answer

SC's business model is like that of a Service Industry. Inventory in a Service Business is a bit tricky to comprehend. It can be co-related to work in progress. Thus, SC's Inventory at the end of the year shall be work remaining pending or due at any tijme during the next year. Costs such as Rent, Salaries of Assistants, etc are Costs that are recurring in nature and are not specifically allocable to any particular task / assignment. Thus, these can not be considered in Inventory balance at the end of the year as there is no particular task / assignment for which these costs are specifically incureed. Whereas, assignment specific costs such as Payouts to HR professionals who are specifically allocated to the assignment / task shall be included in year end inventory. Further, specific advertisement cost incurred on behalf of the client, application sorting and short listiong costs, interview costs, etc incurred upto the end of the year shall be included in year-end inventory. Those costs which have been incurred upto the year-end relevant to a clientele assignment due in the next year shall be included in the Inventory cost.

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