Part 1

An accounting firm provides 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:

Discuss the reasons a consulting firm might use normal costing in its job system rather than actual costing.(5 Marks)

Part 2

Describe two alternative ways to dispose of underallocated or overallocated indirect costs (Manufacturing Overhead). What impact does each method have on the Income Statement and Balance Sheet.(5 Marks)