Terrell and Associates,CPA's Provides Two Types of Services: Audit and Tax.All

Essay

Terrell and Associates,CPA's provides two types of services: audit and tax.All company personnel can perform either service.In efforts to market its services,the company relies on radio and billboards for advertising.Information on the company's projected operations for the coming year follows:

                                                                          $\text {\underline{ Aucht} }$           $\text {\underline{ Taxes} }$
$\begin{array}{lll}\text { Revenue per billable hour } & \$ 35 & \$ 30 \\\text { Variable cost of professional labor } & 25 & 20 \\\text { Material cost per billable hour } & 2 & 3 \\\text { Allocated fixed costs per year } & 100,000 & 200,000 \\\text { Projected billable hours } & 14,000 & 10,000\end{array}$
a. What is the coimpany s projected profit of (loss)?
b. If $\$ 1$ spent on advertising could increase either aucht services billable time by 1 hour or tax services billable time by 1 hour, o which service should the acvertising dollar be spent?