Business Decision Case Elizabeth Flanigan and Associates is an engineering and design firm that

specializes in developing plans for recycling plants for municipalities. The firm uses a job costing

system to accumulate the cost associated with each design project. Flanigan employs three levels of

employee: senior engineers, associate engineers, and clerical staff. The salary cost of the senior en-

gineers and the associate engineers is assigned to each project as direct labor. The salary cost of the

clerical staff is included in overhead, along with the cost of engineering supplies, automobile travel,

and equipment depreciation. The cost of airline travel, motels, building permits, and fees from other

consultants is charged to each project as direct material. Overhead is applied to projects using a pre-

determined overhead rate based on total engineering hours. The rate for 2014 is $5 per hour.

The six different salary levels for 2015 for the employees of Elizabeth Flanigan and Associates

are listed below. The hourly rate is determined by dividing the yearly salary by 2,000 hours per year.

Senior engineer

Level 1: $44,000 per year ($22 per hour)

Level 2: $36,000 per year ($18 per hour)

Associate engineer

Level 3: $30,000 per year ($15 per hour)

Level 4: $24,000 per year ($12 per hour)

Clerical staff

Level 5: $16,000 per year ($8 per hour)

Level 6: $12,000 per year ($6 per hour)

The billings that are sent to the municipalities for engineering services utilize cost-plus billing.

Typically, the total costs accumulated for a project (direct material, direct labor, and overhead) are

multiplied by 140% to determine the amount of the billing. The difference between the billed amount

and the accumulated cost is the plus in cost plus.

During March 2015, Flanigan accumulated the following information related to Job 295 for

Johnson Creek City:

Senior engineer hours

Level 1 . . . . . . . . . . . . . . . . . . . . . . . . 52

Level 2 . . . . . . . . . . . . . . . . . . . . . . . . 84

Associate engineer hours

Level 3 . . . . . . . . . . . . . . . . . . . . . . . . 106

Level 4 . . . . . . . . . . . . . . . . . . . . . . . . 44

Clerical hours

Level 5 . . . . . . . . . . . . . . . . . . . . . . . . 20

Level 6 . . . . . . . . . . . . . . . . . . . . . . . . 66

Building permits . . . . . . . . . . . . . . . . $1,500

Airline travel and motel . . . . . . . . . . $865

Discuss the next two problems:

Required

a. What amount should be billed to Johnson Creek City for March 2015?

b. How much profit was earned on Job 295 during March 2015?