Mighty Mike's Accounting Service provides two types of services: audit and tax. All company personnel can perform either service. In efforts to market its services, Mighty Mike relies on radio and billboards for advertising. Information on Mighty Mike's projected operations for the coming year follows:
Audit Taxes
Revenue per billable hour $35 $30
Variable cost of professional labor 25 20
Material cost per billable hour 2 3
Allocated fixed costs per year 100,000 200,000
Projected billable hours 14,000 10,000
a. What is Mighty Mike's projected profit or (loss)?
b. If $1 spent on advertising could increase either audit services billable time by 1 hour or tax services billable time by 1 hour, on which service should the advertising dollar be spent?