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. Sales revenue Costs FORMAN'S SERVICES Annual Income Statement Labor Equipment lease Rent Supplies Owner's salary Other costs Total costs Operating profit (loss) If Forman's gets the merchant's business, it will incur an additional $31,000 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: a. What are the differential costs that would be incurred as a result of adding this new client? b. Will would normally charge about $51,000 in fees for the services the store would require. How much could he offer to charge and still not lose money on this client? Total costs $ 1,090,000 715,500 76,000 64,800 48,800 Complete this question by entering your answers in the tabs below. 112,500 34,400 $1,052,000 $ 38,000 Required A Required B What are the differential costs that would be incurred as a result of adding this new client? Differential Cost Item $ 0 < Required A Required B > c. What considerations, other than costs, are necessary before making this decision? Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect. whether this will lead to demands by other cilents for lower fees. what other opportunities the company has for its payroll professionals. Profitability of the other contracts. whether the business is likely to expand in the future.
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. Sales revenue Costs FORMAN'S SERVICES Annual Income Statement Labor Equipment lease Rent Supplies Owner's salary Other costs Total costs Operating profit (loss) If Forman's gets the merchant's business, it will incur an additional $31,000 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: a. What are the differential costs that would be incurred as a result of adding this new client? b. Will would normally charge about $51,000 in fees for the services the store would require. How much could he offer to charge and still not lose money on this client? Total costs $ 1,090,000 715,500 76,000 64,800 48,800 Complete this question by entering your answers in the tabs below. 112,500 34,400 $1,052,000 $ 38,000 Required A Required B What are the differential costs that would be incurred as a result of adding this new client? Differential Cost Item $ 0 < Required A Required B > c. What considerations, other than costs, are necessary before making this decision? Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect. whether this will lead to demands by other cilents for lower fees. what other opportunities the company has for its payroll professionals. Profitability of the other contracts. whether the business is likely to expand in the future.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text: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.
Sales revenue
Costs
FORMAN'S SERVICES
Annual Income Statement
Labor
Equipment lease
Rent
Supplies
Owner's salary
Other costs
Total costs
Operating profit (loss)
If Forman's gets the merchant's business. It will incur an additional $31,000 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:
a. What are the differential costs that would be incurred as a result of adding this new client?
b. Will would normally charge about $51,000 in fees for the services the store would require. How much could he offer to charge and
still not lose money on this client?
Required A Required B
Complete this question by entering your answers in the tabs below.
Total costs
$ 1,090,000
715,500
76,000
64,800
48,800
What are the differential costs that would be incurred as a result of adding this new client?
Differential
Cost
Item
112,500
34,400
$ 1,052,000
$ 38,000
$
0
< Required A
c. What considerations, other than costs, are necessary before making this decision?
Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct
answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question
mark will be automatically graded as incorrect.
Profitability of the other contracts.
Required B >
whether this will lead to demands by other clients for lower fees.
What other opportunities the company has for its payroll professionals.
whether the business is likely to expand in the future.
current financial position of the company.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education