Question #3 A consulting company performs a “basic” market analysis for a client
ID: 2427537 • Letter: Q
Question
Question #3
A consulting company performs a “basic” market analysis for a client. It incurs costs of $15,000 in performing the analysis and plans to sell the report to the client for $33,000. After reviewing the initial report, the client asks the firm if it is willing to do a more extensive report. The client offers to pay $65,000 for a more extensive report. If the more extensive report is done, the client will NOT pay the $33,000. If the consulting firm estimates it will require $22,000 in additional expenses to complete the more extensive report, should it agree to do the more extensive report? Why or Why not? Be specific in your response.
Explanation / Answer
Incremental profit/(Loss):
= Incremental revenue-Incremental costs
= $65,000-$22,000
= $43,000
He should agree to do more extensive report.