Question: Budget Tax Service Inc prepares tax returns for small businesse

Budget Tax Service, Inc prepares tax returns for small businesses. The cost of preparing 800 tax returns in the prior year was:
Direct labor ............ $320,000
Variable overhead ........... 296,000
Fixed overhead .......... 250,000
Total cost ............. $866,000
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 Budget Tax Service to prepare tax returns for its 150 small-business clients. Budget 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 Budget Tax Service’s current clients. Advantage is willing to pay $900 per tax return.

What will be the effect on Budget Tax Service’s profit if it agrees to prepare returns for the 150 clients of Advantage Business?

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  • CreatedSeptember 23, 2013
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