Projects that span more than one year or cut across the date of corporate salary increases may

Question:

Projects that span more than one year or cut across the date of corporate salary increases may require the use of forward-pricing rates. Forward-pricing rates are determined from economic data, industry surveys, and best-guess predictions.
As an example, consider Table 15€“17 in the previous problem, which shows the salary structure for an engineering department. For simplicity, we shall make the following assumptions:
— Promotions and salary increases, including cost-of-living adjustments, are effective
January 1 and are then held constant for the entire year.
— The overhead rate is 150 percent and fixed for the entire year.
— All projects are priced out using the salary of a pay grade 7.
— Most of the departmental workers are pay grade 7 employees.
Situation: Your company has just won a one-year contract. The contract was planned to start on January 1, 2006, and be completed by December 31, 2006. The work that was to be performed by this department was estimated at 1000 hours per month for the duration of the twelve-month project using pay grade 7 employees. The customer informs you that they wish to start the project on July 1 rather than January 1, and they assume that there is no financial impact on the total cost of the project.
The Finance Department provides you with the forward pricing rate data in Table 15€“18 and tells you that the overhead rate for 2007 is expected to increase to 155 percent. Is there a financial impact on the total cost of the project, and if so, how much of animpact?