Morris Inc To Satisfy the Tackle Contract, Another Part-Time Trainer Will Need

Essay

Morris Inc. is a management consulting firm that specializes in management training programs. Tackle Manufacturing Inc. has approached Morris to contract for management training for a one-year period. Last year's income statement for Morris is as follows:
$\begin{array}{lr}\text {Sales Revenue}&&\$360,000\\\text { Costs:}\\\text { Labor } & \$ 120,000 \\\text { Equipment Lease } & 12,000\\\text { Rent } & 24,000 \\\text { Utilities } & 8,400 \\\text { Supplies } & 23,600 \\\text { Other Costs } & 14,400\\\text { Manager's Salary } & 80,000 \\\text { Total Costs}&&282,400\\\text { Operating Profit (Loss)}&&\$77,600\end{array}$
To satisfy the Tackle contract, another part-time trainer will need to be hired at $42,000. Supplies will increase by 12% and other costs will increase by 15%. In addition, new equipment will need to be leased at a cost of $2,500.
a. What are the differential costs that would be incurred if the Tackle contract is signed?
b. If Tackle will pay $55,000 for one year, should Morris accept the contract? Explain your answer.