Question 1: (Total 5 Marks)

Hammond and Jarrett provide tax consulting for estates and trusts. Their job-costing system has a single direct-cost category (professional labor) 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 labor-hours.

Required:

1. Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system.
   What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?

Question 2: (Total 12 Marks)

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The following additional data apply:

Required:

1. Using the traditional system, determine the operating profit per unit for the brass style of faucet.
   b.   Determine the activity-cost-driver rate for setup costs and inspection costs.
   c.   Using the ABC system, for the brass style of faucet:
2. compute the estimated overhead costs per unit.
   2.   compute the estimated operating profit per unit.
3. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Question 3: (Total 7 Marks)

Clinton Company sells two items, product A and product B.  The company is considering dropping product B.  It is expected that sales of product A will increase by 40% as a result.  Dropping product B will allow the company to cancel its monthly equipment rental costing $100 per month.  The other existing equipment will be used for additional production of product A.  One employee earning $200 per month can be terminated if product B production is dropped.  Clinton’s other fixed costs are allocated and will continue regardless of the decision made.  A condensed, budgeted monthly income statement with both products follows: