Question

You have been hired as the new cost accountant & operations manager for a new tax practice in Fayetteville, NC. You are responsible for several things that relate to a new tax office and ultimately the cost per tax return.

You do not do any tax preparation work, so your salary is not in the product cost.

Your salary is $48,000 per year, plus benefits, and you get $1.00 per tax return as an incentive.

Based on the following information, construct a memo that gives CVP analysis, the variable costs and fixed costs for the firm. Your final goal is to develop a cost per tax return to charge to potential clients. This is a real-world application and can have positive and negative issues.

Cost Data:

$5.00 per tax return for paper and printing

$5.00 per tax return for software

$40.00 per tax return for direct labor. Mr. McKenzie has agreed to prepare all tax returns for $40.00 per hour and can do all tax returns in 1-hour. He is an independent contractor, thus no payroll taxes or benefits.

The partner reviews the tax returns, and spends 10 minutes per return or $10.00 in review. This is QC for the process and not direct labor.

The partner makes $5,000 per month as a draw. There are no taxes paid by the practice, as this is a partnership. His wife works as the receptionist and is paid $3,000 per month, as a draw.

Your taxes, benefits and insurance are $3,000 per month for computation purposes.

Firm costs:

Rent- $1,500 per month

Phone/Internet- $500 per month

Copier- $500 per month

Utilities- $500 per month

Supplies- $1,000 per month

Business Insurance- $250 per month

Errors and Omission Insurance $250 per month.

Depreciation on computer and fixtures is $500 per month.

Miscellaneous firm costs are $500 per month and are not allocated to tax preparations.   

You expect to do 180 tax returns per month.

Presentations-

Memo format,

1-    Firm Name, location, website, and any marketing ideas

2-    Vision Statement

3-    Core Competencies

4-    Variable Costs- list and explain variable costs

5-    Fixed Costs- List and explain fixed costs

6-    Conclusion and any comments

7-    Price per tax return to charge clients

Answer 1

Total Tax Returns	180
Variable Costs per Return
Paper and Printing	$5
Software	$5
Direct Labour	$40
Quality Control	$10
Incentive	$1
Total Variable Costs per return	$61
Fixed Costs
Rent	$1,500
Phone/Internet	$500
Copier	$500
Utilities	$500
Supplies	$1,000
Business Insurance	$250
Errors and Omissions	$250
Depreciation	$500
Miscellaneous Firm Costs	$500
Salary- Accountant	$7,000
Salary-receptionist	$3,000
Partner fixed drawings	$5,000
Total Fixed Costs per month	$20,500
Fixed Costs per return	$114
Total Costs per return	$175

Variabe Costs vary based on number of returns, however fixed Costs remains same irrespective of the number of returns.

Note: It is asssumed that $5000 drawn the partner doesnot include the Tax return review of $10 pere return.