Reference no: EM131783583

Viena is a regional firm that offers audit, tax, and consulting services. The partners are concerned about the profitability of their audit business, and a closure decision might be forthcoming. If the firm drops the audit activities, it might do more tax work. Only 30 percent of facility costs associated with auditing disappears by dropping the auditing function. More tax work can increase tax revenues by 40 percent, but tax service-level costs also increase by 40 percent. Total facility cost is unchanged whether or not tax work is increased. Segmented income statements for these three product lines follow.

                                                                            Auditing              Tax                  Consulting

        Sales                                                            $300,000            $500,000             $600,000

        Service-level cost                                        $250,000            $300,000             $350,000

        Shared facility cost                                        $50,000              $60,000               $80,000

        Operating income (loss)                                         $0            $140,000             $170,000

Determine which alternative Viena should choose: (1) keep the auditing (2) drop the auditing line without increasing tax work or (3) drop auditing and increase tax work.