1.B You is a consulting firm that works with managers to improve their interpersonal skills. Recently, a representative of a hightech 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 ............. $504,000
Costs Labor ................ 239,400
Equipment lease ........... 35,280
Rent ............... 30,240
Supplies ............... 22,680
Officers salaries ........... 147,000
Other costs .............. 15,960
Total costs ............. $490,560
Operating profit (loss) ......... $ 13,440
If B You decides to take the contract to help the manager, it will hire a full time consultant at $85,000. 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.
Required:
a. What are the differential costs that would be incurred as a result of taking the contract?
b. If the contract will pay $90,000, should B You accept it?
c. What considerations, other than costs, are necessary before making this decision?