Consultants specializes in computer systems design and programming. Most of the company's employees have a background in both computers and management. PS's average job takes three to four months to complete. The price PS quotes for consulting services is based on the expected number of consultant hours and an estimate of out-of-pocket expenses. When a job is finished, PS bases its charges on the actual number of hours and costs incurred on the job. The firm usually does not collect its fee until a consulting job is completed.

Currently PS records all of the firm's expenses in the periods in which they are incurred. Those expenses include the hourly wages of consultants and programmers as well as indirect costs-employee benefit packages, travel expenses, and other out-of-pocket expenses. Fixed overhead costs for administering the office, rent, advertising, depreciation on computer equipment, and software license fees also are expensed each period.

Leslie Rinauro is the firm's managing partner. She is concerned because the company's income fluctuates significantly from month to month. In the months when several jobs are billed, the firm shows respectable profits. In other months, the firm shows large losses, even though all of the consultants and programmers are busy. Leslie wants to use a costing method that will better reflect PS's income and smooth out the month-to-month profit fluctuations.

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A. How could PS better match the costs of its services with the income it generates?

B. How does the deferral of costs relate to PS's client services?

C. How do the concepts of variable and absorption costing affect PS?