10.14 Sample examination question 1. Consultants Ltd provides management consulting to small and medium enterprises operating in Europe. The firm has been operating at full capacity over the last five years, using a business model where full-time employed consultants are preferred over external consultants. Consultants Ltd appoints a new full-time consultant only under the conditions that: Ca. The color in the last two years the demand for consultancy exceeds the maximum capacity of the firm's existing full-time comediants and is equivalent to at least the working hours of full time consultant it is probable that the required excess of demand will be sustained for at least three years in the future. A full-time consultant can produce 500 consulting hours and coses $150,000 per year, whereas an external consultant costs 5400 per hour The demand for consultancy in the last year and in the next three years is recorded and estimated as follows: Last year Year 1 Year 2 Years Demand for consultancy in hours) 5.200 5.100 5.200 5.500 The table below shows data that refer to the last year of business of Consultants Ltd. Revenues $2.500,000 Full-time consultants' cost 8 x 5150,000 151,200,0001 External consultants' cost 1.200 5400 $480,000) Gross margin $820,000 Overhead costs 5700.000 Net income 5620.000 Assume that: the average price for consultancy over years 1, 2 and 3 will remain the same and, in addition to the information above, a new client requests 500 hours of consultancy for year 1 in order to fulfil this new order, Consultants Ltd would need to spend $50,000 on new software that would be used exclusively for this new order and would have no other use or value in the future Consultants Ltd aims at maintaining its current contribution margin a. Devise a plan for Consultants Lid's plan according to its recruitment policy, prior to considering the new client's proposal. b. Calculate the price that Consultants Led should request from the new client, according to its pricing policy Now assume that Consultants Ltd has a workforce of 15 full-time consultants, giving Consultants Ltd a vast amount of idle capacity. e Calculate again, under this new assumption, the price that Consultants Led should request from the new client, according to its pricing policy. Assume that the new client had a price of $350,000 in mind as the maximum price to pay for the contract. d. Explain the appropriate considerations for Consulting Led in this situation