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a. Calculate the expected full cost of the Surenex engagement for YSL Marketing Research: Step 1, calculate the Overhead (O/H) rate (based on annual totals):
a. | Calculate the expected full cost of the Surenex engagement for YSL Marketing Research: | ||
Step 1, calculate the Overhead (O/H) rate (based on annual totals): | |||
Annual Overhead (rent, utilities, equip deprec'n) | Notice that these are all fixed costs | ||
Annual Total Prof. Compensation (base for rate) | See first paragraph. | ||
Overhead rate | O/H rate = O/H$ / Allocation base $ | ||
Step 2, calculate cost for Surenex engagement | |||
Labor (Connie + Ambrose) | |||
Overhead (O/H rate x labor $) | |||
Direct Charges (travel, mail, etc) | |||
Total | |||
b. | What is the lowest amount Connie can bill without hurting company profit? | ||
Step 1, determine the incremental cost only | |||
Labor (Connie + Ambrose) | |||
Direct Charges (travel, mail, etc) | |||
Total | |||
Step 2, determine the opportunity cost (sales given up) | |||
Labor (Connie + Ambrose) | |||
Price (above labor times 1.5x billing rate): | Note that labor and overhead and profit are covered in this billing rate. | ||
plus direct charges | |||
Total "Opportunity cost" (other sales option) | Note: this is the normal price that would have been charged to Surenex or any company for the same size of job. | ||
Answer: the larger of these two amounts: | is the lowest amount to bill without "hurting" company profits | ||
c. | In deciding a price, what else should Connie consider in addition to the amount from "b.". | ||
Hint: this is not a calculation, read what was said about Surenex. Training from your Marketing class comes in here. | |||
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