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Question
John Jones operates an accounting and tax practice. He bills $80 per hour for accounting and $150 per hour for tax preparation and related services.
Mr. Jones expects the following costs for next year:
Office Supplies
$
7,000
Rent
$
24,000
Bookkeepers Salary
$
45,000
Tax and Accounting Software
$
6,000
$
82,000
Having experienced a decline in operating income last year, Jones decides to try a new system he just learned about called
Activity based costing to determine whether he should change his fee structure. He developed the following data from previous recors
Activity
Office Supplies
Rent
Bookkeepers Salary
Tax and Accounting Software
Cost Driver
Hours Billed
Types of Services Offered
Number of Clients
Services Billed
Accounting Tax Services
1,400
600
1
1
50
200
360
400
He feels that he had better not change his accounting billing rate due to competitive pressures. He does feel that he can charge more for his tax services.
He would like to make $150,000 before taxes next year. What would he need to bill per hour for his tax services to achieve this goal?
