Jim Lucky, CPA, is the owner of a firm that provides payroll support services. The firm charges $40 per payroll return for the direct professional labor involved in preparing the payroll and submitting the required tax forms. In January, the firm prepared 50 such returns; in February, 100; and in March, 70. Service overhead (telephone and utilities, depreciation on equipment and building, tax forms, office supplies, and wages of clerical personnel) for January was $2,000; for February, $3,500; and for March, $2,700.
1. Using the high-low method, determine the variable and fixed cost components of the firm’s Service Overhead account.
2. What would the estimated total cost per tax return be if the firm prepares 80 payroll forms in April?