Assume that you manage a business that provides services to both state government agencies and private organizations. Contracts for both groups are awarded on the basis of competitive bids. Your contracts with government agencies provide for reimbursement of costs plus a set percentage markup above cost for negotiated levels of service. Your contracts with private organizations are based on fees for levels of service. The relative profitability of the two types of contracts based on average cost information using hypothetical numbers follows:

Costs and Revenues Government Contract Private Contract Total Costs $2,000 $2,000 $4,000 Revenues:

Cost x 140% 2,800 NA 2,800 Negotiated fee NA 3,000 3,000 Profit $ 800 $1,000 $1,800 You recently completed an ABC analysis that indicates that government contracts are much less costly than estimated previously:

Costs and Revenues Government Contract Private Contract Total ABC costs $1,000 $3,000 $4,000 Revenues Cost x 140% ~ 1,400 NA 1,400 Negotiated fee NA 3,000 3,000 Profit $ 400 ceo $ 400 Required If you used the preceding ABC analysis for contracting, overall profitability would be much less. How should you use this information