Question

Carmen Seville and Don Turco jointly own Bright Green Temp Services (BGTS). Carmen owns 67 percent and Don owns 33 percent. The company provides temporary clerical services at a rate of $57 per hour. During the past year, its clients used 31,000 hours of temporary services.

  

Big City Developers purchased 4,500 hours of temporary services from BGTS last year. Carmen has a 27 percent interest in Big City Developers, and Don has a 58 percent interest in it. At the end of the year, Don suggested that BGTS give Big City Developers a 10 percent reduction in the hourly rate charged next year in recognition of its large purchases and desirability as a client.

Required:

Assuming that Big City Developers purchases the same number of hours and that all other costs and activities remain the same in the coming year, what effect would the price reduction have on BGTS’s operating profits that accrue to Carmen and to Don for the coming year? (Decrease in profits should be indicated by minus sign wherever appropriate.)

	Total Ms. Seville's Shares (67% and 27%) Mr. Turco's Shares (33% and 58%) Decrease in profits at BGTS Increase in profits at Big City Developers Net change in profits $ $ $

Answer 1

solution: IMs. shevells Ms. Turcos Particulars Total I shares shares (67). and 27.1)|(33.f. and 58.1) Decrease in profits at BGTS ($25,650) l($ 17, 185.50) 1$ 8464.50) Increase in profit at Big city developers $ 25,650 $ 6925.50 $ 14-877 | Net change in Profits ||$10,260) $6412.50 $ 25,650 = ( 4500 x $57 x 106),