PRIMUS CONSULTING GROUP

Primus is a firm of consultants that focuses on process reengineering and quality improvement initiatives.Northwood Industries has asked Primus to conduct a study aimed at improving on-time delivery.Normal practice for Primus is to bill for consultant time at standard rates plus actual travel costs and estimated overhead.However, Northwood has offered a flat $85,000 for the job.Currently Primus has excess capacity in that it can take on the Northwood job without turning down other business and without hiring additional staff.

If normal practices were followed, the bill would be:

ClassificationHoursRateAmount

Partner 100 $250 $25,000

Senior consultant 200 $150 30,000

Staff consultant 200 $80 16,000

Travel costs 15,000

Overhead at $20 per Nonpartner hour 8,000

Total $94,000

Overhead (computer costs, rent, utilities, paper, copying, etc.) is determined at the start of the year by dividing estimated annual overhead costs ($1,600,000) by total estimated nonpartner hours (80,000 hours).Approximately 10 percent of the total overhead amount is variable costs.

All Primus employees receive a fixed annual salary (i.e., there is no compensation for overtime and they are paid monthly, even if they are "on the beach.").Annual compensation in the previous year amounted to the following:

Per Hour

Partners$260

Senior consultant $95

Staff consultant$45

Required

What will be the effect on company profit related to accepting the Northwood Industries job?What qualitative factors should be considered in the decision as to whether or not to accept the job?