Problem $1-46($Algo$)$ Cost Data for Managerial Purposes $($LO $1-3)$

Forman's Services is a small accounting firm that offers payroll and bookkeeping services to small businesses and individuals. A local merchant has approached Will Forman, the owner, about taking over his payroll disbursements, but is concerned about the fees Forman's normally charges. The costs and revenues at Forman's Services follow.

FORMAN'S SERVICES

Annual Income Statement

Sales revenue $ $1,220,000$

Costs

Labor $715,500$

Equipment lease $81,200$

Rent $64,800$

Supplies $51,400$

Owner$$s salary $112,500$

Other costs $37,000$

Total costs $ $1,062,400$

Operating profit $($loss$)$ $ $157,600$

If Forman's gets the merchant's business, it will incur an additional $$44,000$ in labor costs. Will also estimates that he will have to increase equipment leases by about $10$ percent, supplies by $15$ percent, and other costs by $5$ percent. There will be no additional rent.

Required:

What are the differential costs that would be incurred as a result of adding this new client?

Will would normally charge about $$64,000$ in fees for the services the store would require. How much could he offer to charge and still not lose money on this client?Problem $1-46($Algo$)$ Cost Data for Managerial Purposes $($LO $1-3)$

Forman's Services is a small accounting firm that offers payroll and bookkeeping services to small businesses and individuals. A local merchant has approached Will Forman, the owner, about taking over his payroll disbursements, but is concerned about the fees Forman's normally charges. The costs and revenues at Forman's Services follow.

FORMAN'S SERVICES

Annual Income Statement

Sales revenue $ $1,220,000$

Costs

Labor $715,500$

Equipment lease $81,200$

Rent $64,800$

Supplies $51,400$

Owner$$s salary $112,500$

Other costs $37,000$

Total costs $ $1,062,400$

Operating profit $($loss$)$ $ $157,600$

If Forman's gets the merchant's business, it will incur an additional $$44,000$ in labor costs. Will also estimates that he will have to increase equipment leases by about $10$ percent, supplies by $15$ percent, and other costs by $5$ percent. There will be no additional rent.

Required:

What are the differential costs that would be incurred as a result of adding this new client?

Will would normally charge about $$64,000$ in fees for the services the store would require. How much could he offer to charge and still not lose money on this client?