Question

Help Save & Exit Submit Exam Ch 1 2 3 als Tom's Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and revenues at Tom's Tax Services follow: TON'S TAX SERVICES Annual The statement Sales revenue $ 729,000 Costs Labor 470,000 Equipment lease 49,200 Rent 41,700 Supplies 31,400 Tom's salary 74,800 Other costs 21,600 Total costs $ 688,700 Operating profit (loss) $ 40,300 if Tom gets the store's business, he will incur an additional $58,800 in labor costs. Tom also estimates that he will have to increase equipment leases by about 5 percent, supplies by 10 percent, and other costs by 10 percent. Required: a. What are the differential costs that would be incurred as a result of adding this new client? b. Tom would normally charge about $74,300 in fees for the services the store would require. How much could he offer to charge a still not lose money on this client? c. What considerations, other than costs, are necessary before making this decision? Complete this question by entering your answers in the tabs below. Required A Required B Required C What are the differential costs that would be incurred as a result of adding this new client?

Answer 1

(a)
Particulars	Amount (in $ )
Labor Costs	$ 58,800
Equipment lease Costs ( $ 49,200 x 5% )	$ 2,460
Supplies Costs ( $ 31,400 x 10% )	$ 3,140
Other Costs ( $ 21,600 x 10% )	$ 2,160
Total Costs	$ 66,560
(b)
Reduce the fees by ( $ 74,300 (-) $ 66,560 )	$ 7,740
c)
Profitability of other Contracts
Whether the business is likely to expand
what other opportunities the company has for its tax prof.
This will lead to demand by other clints for low fees