Carmen Seville and Don Turco jointly own Bright Green Temp Services (BGTS). Carmen owns 62 percent and Don owns 38 percent. The company provides temporary clerical services at a rate of $52 per hour. During the past year, its clients used 26,000 hours of temporary services.

Big City Developers purchased 4,000 hours of temporary services from BGTS last year. Carmen has a 22 percent interest in Big City Developers, and Don has a 62 percent interest in it. At the end of the year, Don suggested that BGTS give Big City Developers a 10 percent reduction in the hourly rate charged next year in recognition of its large purchases and desirability as a client.

Required:

Assuming that Big City Developers purchases the same number of hours and that all other costs and activities remain the same in the coming year, what effect would the price reduction have on BGTSs operating profits that accrue to Carmen and to Don for the coming year? (Decrease in profits should be indicated by minus sign wherever appropriate.)

Carmen Seville and Don Turco jointly own Bright Green Temp Services (BGTS). Carmen owns 62 percent and Don owns 38 percent. The company provides temporary clerical services at a rate of $52 per hour. During the past year, its clients used 26,000 hours of temporary services.

Big City Developers purchased 4,000 hours of temporary services from BGTS last year. Carmen has a 22 percent interest in Big City Developers, and Don has a 62 percent interest in it. At the end of the year, Don suggested that BGTS give Big City Developers a 10 percent reduction in the hourly rate charged next year in recognition of its large purchases and desirability as a client.

Required:

Assuming that Big City Developers purchases the same number of hours and that all other costs and activities remain the same in the coming year, what effect would the price reduction have on BGTSs operating profits that accrue to Carmen and to Don for the coming year? (Decrease in profits should be indicated by minus sign wherever appropriate.)

Total Ms. Shevells Shares ( 62% and 22%) Ms. Turcos SHares ( 38% and 62%)

decrease in profits

increase in profits

net change in profits