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cost data for managerial purposes b you is a consulting firm that works with manager 690842

Cost Data for Managerial Purposes

B You is a consulting firm that works with managers to improve their interpersonal skills. Recently, a representative of a high tech research firm approached B You’s owner with an offer to contract for one year with B You to improve the interpersonal skills of a newly hired manager. B You reported the following costs and revenues during the past year.

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B

C

1

B YOU

 

 

2

Annual Income Statement

 

 

3

 

 

 

4

Sales revenue

$ 360,000

 

5

Costs

 

 

6

Labor

171,000

 

7

Equipment lease

25,200

 

8

Rent

21,600

 

9

Supplies

16,200

 

10

Officers’ salaries

105,000

 

11

Other costs

11,400

 

12

Total costs

$350,400

 

13

Operating profit (loss)

$9,600

 

14

 

 

 

If B You decides to take the contract to help the manager, it will hire a full time consultant at $85,000. Equipment lease will increase by 5 percent. Supplies will increase by an estimated 10 percent and other costs by 15 percent. The existing building has space for the new consultant. No new offices will be necessary for this work.

Required

a. What are the differential costs that would be incurred as a result of taking the contract?

b. If the contract will pay $90,000, should B You accept it?

c. What considerations, other than costs, are necessary before making this decision?

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