Allocation of scarce resources Since LaNora White graduated with an accounting degree, she has obtained significant experience in a variety of job settings. Her skills include auditing, income and estate taxation, and business consulting. White currently has her own practice, and her skills are in such demand that she limits her practice to taxation issues. Most of her engagements are one of three types: individual income taxation, estate taxation, or corporate taxation. Following are data pertaining to the revenues and costs of each tax area (per tax return): Individual Estate Corporate $350 $1,200 Revenue Variable cost $50 $200 Hours per return of White's time 2 8 5 Fixed costs of operating the office are $96,000 per year. White has such significant demand for her work that she must ration her time. She desires to work no more than 2,400 hours in the coming year. She can allocate her time so that she works only on one type of tax return or on any combination of the three types. a. How should White allocate her time in the coming year to maximize her income? Hours Worked 0 0 0 $750 $150 Individual Estate: Corporate b. Based on the optimal allocation, what is White's projected pre-tax income for the coming year? $ 0

Allocation of scarce resources Since LaNora White graduated with an accounting degree, she has obtained significant experience in a variety of job settings. Her skills include auditing, income and estate taxation, and business consulting. White currently has her own practice, and her skills are in such demand that she limits her practice to taxation issues. Most of her engagements are one of three types: individual income taxation, estate taxation, or corporate taxation. Following are data pertaining to the revenues and costs of each tax area (per tax return): Individual Estate Corporate $350 $1,200 Revenue Variable cost $50 $200 Hours per return of White's time 2 8 5 Fixed costs of operating the office are $96,000 per year. White has such significant demand for her work that she must ration her time. She desires to work no more than 2,400 hours in the coming year. She can allocate her time so that she works only on one type of tax return or on any combination of the three types. a. How should White allocate her time in the coming year to maximize her income? Hours Worked 0 0 0 $750 $150 Individual Estate: Corporate b. Based on the optimal allocation, what is White's projected pre-tax income for the coming year? $ 0

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Tana Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet’s financial statements. In discussing the audit fee, Allnet’s management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne’s firm. Who are the parties potentially affected by this audit and the fee plan proposed? What are the ethical factors in this situation? Explain. Would you recommend that Thorne accept this audit fee arrangement? Why or why not? What are some ethical considerations guiding your recommendation?
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