Analytical Incremental Analysis #2 Chase Tax Services prepares 800 tax returns for its clients each year 204 gcncrates $500 in revenue for every retum. All tax returns are prepared from its local office with the following annual operating costs. Direct Materials $10,000 Direct Labor $45,000 Variable Service Overhead $15,000 Fixed Service Overhead $10,000 Total Service Costs $80,000 American Tax Company approaches Chase with an offer to prepare tax returns for $98 per tax return. This sounds like an excellent deal because chase would be able to convert its office space for producing 17,000 in additional income by editing video for movie studios. The fixed service overhead costs would remain if Chase outsources its tax practice. 1. What is Chase's per unit service costs? 2. What are the relevant costs? 338 Here an incremental analysis of the make or buy decision. year and prepared Make Dimet Materials Dindt Labor Buy Net Income Increase (Decrease) Var Service Overhead Fixed Service Overhead Purchase Price Opportunity Costs Total Service Costs are tax cing The stax What is the annual impact on net income by Chase discontinuing the production of tax returns and instead, purchasing them? 5. What decision should Chase make? 6. What non-financial factors should Chase consider in making its decision? 339