Question

I need help with this problem.

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: TOM'S TAX SERVICES Annual Income Statement Sales revenue $ 722,000 Costa Labor 450,000 Equipment lease 49,700 Rent 41,800 Supplies 31,100 Tom's salary 74,300 Other costs 22,300 Total costa $ 677,200 Operating profit (loan) $ 44,800 If Tom gets the store's business, he will incur an additional $59,400 in labor costs, Tom also estimates that he will have to increase equipment leases by about 5 percent, supplies by 5 percent, and other costs by 5 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 $73,200 in fees for the services the store would require. How much could he offer to charge and still not lose money on this client? c. What considerations, other than costs, are necessary before making this decision?

Answer 1

D Differential Cost: Particulars Additional Costs Labor $ 59,400 Equipment lease $ 2,485 Supplies $ 1,555 Other Costs $ 1,115 Total Expenses $ 64,555 A B Reduce the fees by $ 8645 (73200-64555) с Demands by other clients for lower fees. Other opportunities the company has for its tax professionals. Expand in the future Profitability of the other contracts Kindly Comment down for any clarifications/ queries and please upvote.