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. B-YOU Annual Income Statement Sales revenue $ 234,300 Costs Labor 111,000 Equipment lease 16,000 Rent 13,500 Supplies 10,300 Officers' salaries 70,000 Other costs 7,000 Total costs $ 227,800 Operating profit (loss) $ 6,500
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.
| B-YOU | ||
| Annual Income Statement | ||
| Sales revenue | $ | 234,300 |
| Costs | ||
| Labor | 111,000 | |
| Equipment lease | 16,000 | |
| Rent | 13,500 | |
| Supplies | 10,300 | |
| Officers' salaries | 70,000 | |
| Other costs | 7,000 | |
| Total costs | $ | 227,800 |
| Operating |
$ | 6,500 |
If B-You decides to take the contract to help the manager, it will hire a full-time consultant at $84,000. 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.
Problem 1-44 (Algo) Part a
Required:
a. What are the differential costs that would be incurred as a result of taking the contract?
Problem 1-44 (Algo) Part b
b. If the contract will pay $85,000, should B-You accept it?
Problem 1-44 (Algo) Part c
c. What considerations, other than costs, do you think are necessary before making this decision? (Select all that apply.)
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Whether the contract will provide for more revenues in the future.
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Whether this will enable the company to get into a new, profitable line of business.
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What other opportunities the company has for expanding.
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Profitability of the other contracts.
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Current financial position of the company.
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