Question

Gabbard and Fink CPA firm leases tax software from BGG Tax Software Company to prepare federal and state income tax returns. The lease agreement calls for a base charge of $5,000 per year plus $100 per year for each state for which returns are prepared. In addition, Gabbard and Fink are charged $2 ($1 for federal and $1 for state) for each tax return prepared. All of their clients have federal and state returns prepared, with 60 percent in Arkansas and 40 percent in Oklahoma.

What is the firm’s total annual cost for the software if a total 2,500 returns are prepared?

Answer 1

Answer:

Total returns prepared = 2,500

Returns prepared in two states viz. Arkansas and Oklahoma

All of their clients have both federal and state returns prepared.

Firm’s total annual cost for the software:

i) Base charge of $5,000 per year

ii) $100 per year for each state for which returns are prepared:

Returns are prepared for two states, hence charge = $100 * 2 = $200

iii) Charged $2 ($1 for federal and $1 for state) for each tax return prepared:

In total 2500 returns (both federal and state returns) are prepared

Hence, Charges = 2,500 * $2 = $5,000

Hence:

Total charges = Base charges + Charges for states + Charges for returns

= $5,000 + $200 + $5,000

= $10,200

Firm’s total annual cost for the software = $10,200