Tom۪s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. One of Tom۪s major clients, the Orange Caf̩, is considering moving its business to another tax service closer to its location that has promised lower fees. Currently, the costs and revenues at Tom۪s Tax Services are as follows:

If Tom loses the caf̩۪s business, he can save $60,000 in labor costs. Tom also estimates that he can reduce equipment leases by about 10 percent, supplies by 5 percent, and other costs by 15 percent.

Required
a. What are the differential costs that would be saved as a result of losing the caf̩۪s business?
b. Tom currently collects about $75,000 in fees from the café. How much could he offer to reduce the fees and still not lose money on this client?
c. What considerations, other than costs, are necessary before making thisdecision?

Transcribed Image Text:

TOM'S TAX SERVICES Annual Income Statement 4 Salee revenue 5 Costs 6 Labor 7 Equipment lease 8 Rent 9 Supplies 10 Tom's salary 477,000 50,400 43,200 32,400 75,000 11 Other costa 12 Total costs 13 Operating profit (loaa) S 700,800 S 19,200 14