Answer to Question #252718 in Electrical Engineering for Aman

Question #252718

The revenue department of a state government employs certified public accountants (CPAs) 

to audit corporate tax returns and bookkeepers to audit individual returns. CPAs are paid 

$31,200 per year, while the annual salary of a bookkeeper is $18,200. Given the current 

staff of CPAs and bookkeepers, a study made by the department’s economist shows that 

devoting one-year of a CPAs time to auditing corporate returns results in an average 

additional tax collection of $52,000. In contrast, the bookkeepers only achieve additional 

tax collection of $41,600 per year of a bookkeeper’s time.

i) If the department’s objective is to maximize tax revenue collected, is the present mix 

CPAs and bookkeepers optimal? Explain.

ii) If the present mix of CPAs and bookkeepers is not optimal, explain what reallocation 

should be made. That is, should the department hire more CPAs and fewer bookkeepers 

or vice-versa?

Expert's answer
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