Business Support, Inc. prepares tax returns for small businesses. The cost of pr
ID: 2498717 • Letter: B
Question
Business Support, Inc. prepares tax returns for small businesses. The cost of preparing 800 tax returns in the prior year was:
Direct labor $400,000
Variable overhead 296,000
Fixed overhead 250,000
Total cost $946,000
At the start of the current year, the company received an offer from Big Jim's Small Business Gurus, a firm that provides bundled services to businesses. Big Jim's wants Business Support to prepare tax returns for its 150 small business clients. Business Support has the capacity to prepare up to 1,000 returns in a given year, so this special order would not take away revenue from any of Business Support's current clients. Big Jim's is willing to pay $880 per tax return. What will be the effect on Business Support's profit if it agrees to prepare returns for the 150 clients?
Accept, because profit will increase by $1,500.
Don't accept, because profit will decline by $45,375.
Accept, because profit will increase by $132,000.
Don't accept, because profit will be $1,500 less.
Explanation / Answer
Original Per Unit Special Offer Returns 800 950 Direct Labour 400000 500 475000 Variable Overheads 296000 370 351500 Dfixed Overheads 250000 250000 Total Cost 946000 1076500 Increase in Cost 130500 Increase in Revenue 132000 Increase in Profits 1500 Accept, because profit will increase by $1,500
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.