Mounts CPA firm prepares approximately 1,200 individual tax returns each year.Since a majority of the cost of preparing tax returns results from the salary of the tax preparers and reviewers, Mounts charges customers a markup on labor rates.The highest paid preparers earn $30 per hour and are CPAs with several years' experience.Mounts charges its customers $45 per hour.If Mounts charges the same markup percentage to all clients, what price will Mounts charge for a less-experienced preparer who earns only $20 per hour?

Question

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The markup percentage is calculated based on the highest paid preparers' rates: $45 charged for $30 cost per hour gives a markup of 50% ($15 markup on $30 cost). Applying the same 50% markup to the $20 per hour rate for less-experienced preparers gives a charge of $30 per hour ($20 cost plus 50% of $20).

Mounts CPA Firm Prepares Approximately 1,200 Individual Tax Returns Each