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?

  • CreatedSeptember 23, 2013
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