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 are presented below: TOM’S TAX SERVICES Annual Income Statement Sales revenue $ 720,000 Costs Labor 477,000 Equipment lease 50,400 Rent 43,200 Supplies 32,400 Tom’s salary 75,000 Other costs 22,800 Total costs $ 700,800 Operating profit (loss) $ 19,200 If Tom gets the store’s business, he will incur an additional $60,000 in labor costs. Tom also estimates that he will have to increase equipment leases by about 10 percent, supplies by 5 percent, and other costs by 15 percent. Required: a. What are the differential costs that would be incurred as a result of adding this new client?

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 are presented below:

TOM’S TAX SERVICES Annual Income Statement
Sales revenue	$	720,000
Costs
Labor		477,000
Equipment lease		50,400
Rent		43,200
Supplies		32,400
Tom’s salary		75,000
Other costs		22,800
Total costs	$	700,800
Operating profit (loss)	$	19,200

If Tom gets the store’s business, he will incur an additional $60,000 in labor costs. Tom also estimates that he will have to increase equipment leases by about 10 percent, supplies by 5 percent, and other costs by 15 percent.

Required:

a.	What are the differential costs that would be incurred as a result of adding this new client?