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1-43 Cost Data for Managerial Purposes Tom's Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local

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1-43 Cost Data for Managerial Purposes 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 follow 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. TOM'S TAX SERVICES Annual Income Statement 2 3 4 Sales revenue 5 Costs 6 Labor 477,000 50,400 43,200 32,400 75,000 7 Equipment lease 8 Rent 9 Supplies 0 Tom's salary 11 Other costs 12 Total costs 13 Operating profit (loss) 14 $ 700,800 Required a. What are the differential costs that would be incurred as a result of adding this new client? b. Tom would normally charge about $75,000 in fees for the services the store would require How much could he offer to charge and still not lose money on this client? What considerations, other than costs, are necessary before making this decision? c

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