Saturday, 29 November 2014

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?

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