Remmele and Littla CPAs has decided to bid on the audit of Tanner, Inc., a local manufacturing firm. After learning all they can about the potential new client, the partners have estimated the following:
All staff, managers, and partners are paid on average 30 percent of the desired client billing rate ($75,$125,$250). Fringe benefits average 30 percent of the pay rate. Other out-of-pocket costs include supplies, travel, and clerical costs and are usually fairly accurate.
Staff accountant hours: 1,500
Manager hours: 200
Partner hours: 100
Other out-of-pocket costs: $10,000
a. If the firm normally marks up nonlabor costs by 20% to arrive at the client fee, what should the bid price be?
b.Using the information available to you, compute the actual out-of-pocket cost to the CPA firm to complete this audit. Out of pocket costs do not include any profit built into the client billing rate.
c. Using your answer in B, what is the lowest price the CPA firm could charge and not lose money?
d. If Tanner, Inc., rejects the bid and states that it will pay no more than $100,000 for the audit, what are the options open to the CPA firm?