Question

Gabbard and Fink CPA firm leases tax software from BGG Tax Software Company to prepare federal and state income tax returns. The lease agreement calls for a base charge of $5,000 per year plus $100 per year for each state for which returns are prepared. In addition, Gabbard and Fink are charged $2 ($1 for federal and $1 for state) for each tax return prepared. All of their clients have federal and state returns prepared, with 60 percent in Arkansas and 40 percent in Oklahoma.

What is the firm’s cost per unit at a level of 2,500 returns?

Answer 1

Solution:

Total cost at 2500 return = Base charge + Variable charge

= ($5,000 + $100*2) + (2500*$2) = $10,200

Firm's cost per unit = $10,200 /2500 = $4.08 per return.