Homework
Case: Primus Consulting Group
Primus is a firm of consultants that focuses on process re-engineering and quality improvement initiatives. Northwood Industries has asked Primus to conduct a study aimed at improving on-time delivery. Normal practice for Primus is to bill for consultant time at standard rates plus actual travel costs and estimated overhead. However, Northwood has offered a flat $75,000 for the job. Currently, Primus has excess capacity so it can take on the Northwood job without turning down other business and without hiring additional staff. If normal practices were followed, the bill would be:
|
Classification
|
Hours
|
Rate
|
Amount
|
|
Partner
|
90
|
$260
|
$23,400
|
|
Senior consultant
|
125
|
$160
|
20,000
|
|
Staff consultant
|
160
|
$ 90
|
14,400
|
|
Travel costs
|
|
|
21,000
|
|
Overhead at $30 per nonpartner hour
|
|
|
8,550
|
|
Total
|
|
|
$87,350
|
Overhead (computer costs, rent, utilities, paper, copying, etc.) is determined at the start of the year by dividing estimated annual overhead costs ($2,400,000) by total estimated nonpartner hours (80,000 hours). Approximately 20 percent of the total amount is variable costs. All Primus employees receive a fixed wage (i.e., there is no compensation for overtime). Annual compensation in the previous year amounted to the following:
|
|
Per Hour
|
|
Partner
|
$250
|
|
Senior consultant
|
$150
|
|
Staff consultant
|
$ 80
|
Task
What will be the effect on company profit related to accepting the Northwood Industries job? What qualitative factors should be considered in the decision whether to accept the job or not?
Format your homework according to the following formatting requirements:
(1) The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
(2) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
(3) Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.