(Allocation of scarce resources) Jill Rose received her accounting degree in 1972. Since receiving her degree, Ms. Rose has obtained significant experience in a variety of job settings. Her skills include auditing, income and estate taxation, and business consulting. Ms. Rose currently has her own practice and her skills are in such demand that she limits her practice to taxation issues.

Most of her engagements are one of three types: individual income taxation, estate taxation, or corporate taxation. Following are data pertaining to the revenues and costs of each tax area (per tax return):

Individual Estate Corporate Revenue $350 $1,200 $750 Variable costs $50 $200 $150 Hours per return required of Ms. Rose 2 8 5 Fixed costs of operating Ms. Rose’s office are $40,000 per year. Ms. Rose has such significant demand for her work that she must ration her time. She desires to work no more than 2,500 hours in the coming year. She can allocate her time such that she works only on one type of tax return or on any combination of the three types.

a. How should Ms. Rose allocate her time in the coming year to maximize her income?

b. Based on the optimal allocation, what is Ms. Rose’s projected pretax income for the coming year?

c. What other factors should Ms. Rose consider in allocating her time?