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PRIMUS CONSULTING GROUP
Primus is a firm of consultants that focuses on process
PRIMUS CONSULTING GROUP
Primus is a firm of consultants that focuses on process
reengineering 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 $85,000 for the job. Currently Primus
has excess capacity in that 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
100
$250
$25,000
Senior consultant
200
$150
30,000
Staff consultant
200
$80
16,000
Travel costs
15,000
Overhead at $20 per Nonpartner hour
8,000
Total
$94,000
Overhead (computer costs, rent, utilities, paper, copying,
etc.) is determined at the start of the year by dividing estimated annual
overhead costs ($1,600,000) by total estimated nonpartner hours (80,000
hours). Approximately 10 percent of the
total overhead amount is variable costs.
All Primus
employees receive a fixed annual salary (i.e., there is no compensation for
overtime and they are paid monthly, even if they are “on the beach.”). Annual compensation in the previous year
amounted to the following:
Per
Hour
Partners $260
Senior
consultant $
95
Staff
consultant $ 45
Required
What will be
the effect on company profit related to accepting the Northwood Industries job? What qualitative factors should be considered
in the decision as to whether or not to accept the job?
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