The desire to maximize profits can work against racial and other types of discri
ID: 2723808 • Letter: T
Question
The desire to maximize profits can work against racial and other types of discrimination. To see this, consider two equally productive accountants named Ted and Jared. Ted is black, and Jared is white. Both can complete 10 audits per month. Suppose that for any accounting firm that hires either Ted or Jared, all the other costs of performing an audit (besides paying either Ted or Jared) come to $1, 200 per audit. If the going rate that must be paid to hire an accountant is $9,000 per month, how much will it cost an accounting firm to produce one audit if it hires either Ted or Jared to do the work? The cost of producing one audit will be $ If the market price that accounting firms charge their clients for an audit is $2,400, what would the accounting profit per audit be for a firm that hired either Ted or Jared? per audit What is the profit rate as a percentage? Instructions: Suppose that firm A dislikes hiring black accountants, while firm B is happy to hire them. So Ted ends up working at firm B rather than firm A . If Ted works 11 months per year, how many audits will he complete for firm B each year? How much in accounting profits will firm B earn each year from those audits? Because firm A passed on hiring Ted because he was black, firm A is forgoing the profits it could have earned if it had hired Ted. If the firm is willing to forgo up to $17,000 per year in profit to avoid hiring blacks, by how many dollars will firm A regret its decision not to hire Ted?Explanation / Answer
Details Amt $ No of Audits done in a month by Ted or Jared 10 Salary of accountant per month 9,000 Salary cost per Audit 900 Other Costs of performing an Audit 1,200 Total Cost of performing an Audit 2,100 a So Total cost of prodcuing an Audit = 2,100 b Market price charged per Audit 2,400 Less Total cost of prodcuing an Audit = 2,100 Accounting profit per Audit 300 Accounting profit as %=300/2400= 12.50% c Ted works for 11 months So no of Audits he will complete=11*10= 110 Accounting profit Firm B will earn in a year=110*300= 33,000 d Firm A losing accounting profit for not hiring Ted= 33,000 Less: Amt of profit firm A willing to forgo= 17,000 Firm A's regret amt in $ for not hiring Ted = 16,000