Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 is for Primus 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

Partner100$250$25,000

Senior Consultant200$150$30,000

Staff Consultant200$ 80$16,000

Travel Costs$15,000

Overhead at $20 per non-partner hour$ 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 non-partner hours (80,000 hours).Approximately 10% of the total amount is variable costs.

All Primus employees receive a fixed wage (i.e., there is no compensation for overtime.). 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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Tools For Business Decision Making

Authors: Paul D. Kimmel,  Jerry J. Weygandt,  Jill E. Mitchell

8th Edition

1119791057, 978-1119791058

More Books

Students also viewed these Accounting questions

Question

Explain how religious attitudes affect firm behavior.

Answered: 1 week ago