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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Assume that Carmen's Cookies is preparing a budget for the month ending September 30. Management prepares the budget by starting with the actual results for April that are shown below. Then, management considers what the differences in costs will be between April and September. CARMEN'S COOKIES Retail Responsibility Center Actual Costs For the Month Ending April 30 Actual (April) Food Flour $ 1,600 Eggs 5,000 Chocolate 1,300 Nuts 2,000 Other 1,800 Total food $ 11,700 Labor Manager $ 3,000 Other 1,200 Total labor $ 4,200 Utilities 1,500 Rent 5,000 Total cookie costs $ 22,400 Number of cookies sold 25,000 Management expects cookie sales to be 15 percent greater in September than in April, and it expects all food costs (e.g., flour, eggs) to be 15 percent higher in September than in April because of the increase in cookie sales. Management expects “other” labor costs to be 28 percent higher in September than in April, partly because more labor will be required in September and partly because employees will get a pay raise. The manager will get a pay raise that will increase the salary from $3,000 in April to $3,300 in September. Utilities will be 3 percent higher in September than in April. Rent will be the same in September as in April. Now, fast forward to early October and assume the following actual results occurred in September: Required: a. Prepare a statement that compares the budgeted and actual costs. (Round your final answers to nearest whole dollar. Negative amounts should be indicated by a minus sign.)

Assume that Carmen's Cookies is preparing a budget for the month ending September 30. Management prepares the budget by starting with the actual results for April that are shown below. Then, management considers what the differences in costs will be between April and September.


CARMEN'S COOKIES
Retail Responsibility Center
Actual Costs For the
Month Ending April 30
  Actual
(April)
  Food      
       
      Flour $ 1,600  
      Eggs   5,000  
      Chocolate   1,300  
      Nuts   2,000  
      Other   1,800  
 


    Total food $ 11,700  
 


  Labor      
      Manager $ 3,000  
      Other   1,200  
 


    Total labor $ 4,200  
  Utilities   1,500  
  Rent   5,000  
 


  Total cookie costs $ 22,400  
 





  Number of cookies sold   25,000  



    Management expects cookie sales to be 15 percent greater in September than in April, and it expects all food costs (e.g., flour, eggs) to be 15 percent higher in September than in April because of the increase in cookie sales. Management expects “other” labor costs to be 28 percent higher in September than in April, partly because more labor will be required in September and partly because employees will get a pay raise. The manager will get a pay raise that will increase the salary from $3,000 in April to $3,300 in September. Utilities will be 3 percent higher in September than in April. Rent will be the same in September as in April.
     Now, fast forward to early October and assume the following actual results occurred in September:


Required:
a. Prepare a statement that compares the budgeted and actual costs. (Round your final answers to nearest whole dollar. Negative amounts should be indicated by a minus sign.)

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 $ 738,000 Costs Labor 466,000 Equipment lease 50,300 Rent 42,900 Supplies 32,300 Tom’s salary 74,500 Other costs 20,900 Total costs $ 686,900 Operating profit (loss) $ 51,100 If Tom gets the store’s business, he will incur an additional $59,800 in labor costs. Tomalso estimates that he will have to increase equipment leases by about 5 percent, supplies by 10 percent, and other costs by 10 percent.

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 $ 738,000  
   
  Costs    
     Labor   466,000  
     Equipment lease   50,300  
     Rent   42,900  
     Supplies   32,300  
     Tom’s salary   74,500  
     Other costs   20,900  
   
  Total costs $ 686,900  
   
  Operating profit (loss) $ 51,100  
   


If Tom gets the store’s business, he will incur an additional $59,800 in labor costs. Tomalso estimates that he will have to increase equipment leases by about 5 percent, supplies by 10 percent, and other costs by 10 percent.

KC Services provides landscaping services in Edisont. Kate Chen,, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services

KC Services provides landscaping services in Edisont. Kate Chen,, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the company’s business. She estimates that doing so will result in lost revenues of $51,500 per year (including the lost tree business from customers who use the company for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without the lawn business, Kate estimates that the company will save 15 percent of the equipment leases, labor, and other costs. She also expects to save 21 percent on rent and utilities.


KC SERVICES
Annual Income Statement
(Before Dropping Lawn Services)
  Sales revenue $ 316,000  
 

  Costs    
     Equipment leases $ 192,000  
     Labor   32,500  
     Utilities   20,000  
     Rent   31,200  
     Other costs   15,500  
     Manager’s salary   56,800  
 

  Total costs $ 348,000  
 

  Operating profit (loss) $ (32,000) 
 




Required :
a.
Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Loss amounts shoud be indicated by minus sign.)
   
 








rev: 02_21_2014_QC_45747, 02_24_2014_QC_45747


Explanation:
a.
KC SERVICES
Annual Income Statement
         Status Quo:
     With Lawn
     Service
         Alternative:        Without Lawn
    Service
      Difference
  Sales revenue    $ 316,000           $ 264,500          $ (51,500)   (given)  
  Costs              
  Equipment leases   192,000           163,200          (28,800)   (= 15% x $192,000)  
  Labor   32,500           27,625          (4,875)   (= 15% x $32,500)  
  Utilities   20,000           15,800          (4,200)   (= 21% x $20,000)  
  Rent   31,200           24,648          (6,552)   (= 21% x $31,200)  
  Other costs   15,500           13,175          (2,325)   (= 15% x $15,500)  
  Manager's salary   56,800           56,800          0  
 





 
  Total costs   $ 348,000           $ 301,248          $ (46,752)  
 





 
  Operating profit (loss)   $ (32,000)          $ (36,748)          $ (4,748)  
 











 


Equipment leases: 15% x $192,000 = 163,200
Labor: 15% x $32,500 = 27,625
Utilities: 21% x $20,000 = 15,800
Rent: 21% x $31,200 = 24,648
Other costs: 15% x $15,500 = 13,175
b.
The decision to drop the lawn service results in a differential loss of $4,748 [=$(32,000) – $ (36,748)], so it is not profitable to drop that service. Note that only differential costs and revenues figured in the decision. The manager's salary did not change, so it did not affect the decision.