Hammond and Jarrett Provide Tax Consulting for Estates and Trusts

question 38

Essay

Hammond and Jarrett provide tax consulting for estates and trusts.Their job-costing system has a single direct-cost category (professional labour)and a single indirect-cost pool (research support).The indirect-cost pool contains all the costs except direct personnel costs.All budgeted indirect costs are allocated to individual jobs using actual professional labour-hours.
Required:
a.Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system.
b.What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?
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Definitions:

Depreciation

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life.

Contribution Margin

The amount by which sales revenue exceeds variable costs, used to cover fixed costs and generate profit.

Depreciation Expense

The allocation of the cost of a tangible or physical asset over its useful life, reflecting the decrease in value over time.

Contribution Margin

The selling price per unit minus the variable cost per unit, used to cover fixed costs and profits.