Mead & Lawson, LLP, is a local CPA firm that prepares approximately 1,000 tax returns each year for its clients. The managing partner of the firm has asked for information concerning the costs of preparing tax returns. He has been provided with the following data:
Average wage per hour of tax preparation staff ........ $35
Average wage per hour of clerical staff ........... $12
Average number of hours per return (preparation) ...... 10
Average number of hours per return (clerical) ......... 2

A. What is Mead & Lawson’s average direct labor cost of preparing a tax return?
B. Think creatively about options that might be used to reduce the cost of preparing tax returns. What are the implications of the options you suggest?
C. Mead & Lawson has an opportunity to purchase tax preparation software for $5,000 per year. If the software is used, the hours needed to prepare the return would decrease to 3 hours per return and the clerical time would increase to 4 hours because of additional computer operator time. How would the purchase affect the cost of labor on a per tax return basis?
D. Does it appear to be a good business decision to purchase the software? What other costs must be considered?
E. What are the qualitative aspects of the preceding decision?

  • CreatedMarch 11, 2015
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