Jackson Inc. is a management consulting firm that specializes in management training programs. Max Manufacturing Inc. has approached Jackson to contract for management training for a one-year period. Last year's income statement for Jackson is as follows:
To satisfy the Max contract, another part-time trainer will need to be hired at $44,000. Supplies will increase by 14% and other costs will increase by 16%. 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 Max contract is signed?
b. If Max will pay $55,000 for one year, should Jackson accept the contract? Explain your answer.