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 $ 249,000
Costs Labor 116,000
Equipment lease 16,100
Rent 15,400
Supplies 11,200
Officers' salaries 77,000
Other costs 7,300
Total costs $ 243,000
Operating profit (loss) $ 6,000
If B-You decides to take the contract to help the manager, it will hire a full-time consultant at $84,500. 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 $82,500, should B-You accept it?
c. What considerations, other than costs, do you think are necessary before making this decision?
A) Whether the contract will provide for more revenues in the future. B) Whether this will enable the company to get into a new, profitable line of business. C) What other opportunities the company has for expanding. D) Profitability of the other contracts. E) Current financial position of the company.