Question
Sweetwater Tax Service prepares tax returns for small businesses. The cost of preparing 800 tax returns in the prior year was: Direct labor $352,800 Variable
Sweetwater Tax Service prepares tax returns for small businesses. The cost of preparing 800 tax returns in the prior year was:
Direct labor $352,800
Variable overhead $310,400
Fixed overhead $248,000
Total cost $911,200
At the start of the current year, the company received an offer from Advantage Business, a firm that provides bundled services to businesses. Advantage wants Sweetwater Tax Service to prepare tax returns for its 180 small-business clients. Sweetwater Tax Service 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 Sweetwater Tax Service's current clients. Advantage is willing to pay $930 per tax return.
What will be the effect on Sweetwater Tax Service's profit if it agrees to prepare returns for the 180 clients of Advantage Business?
Profit will by $ per year.
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