Wardlaw Company, (Sounds familiar? It is the same company!) a mid-sized engineering firm operates in mid-town Toronto from a suite of offices on the fifth floor of a high-rise office building. Rent for the space, 10,000 square meters, is $8,250,000 per year. All the professional personnel - Engineers, Computer Specialists, Surveyors, Accountants, Sales and Admin personnel are on fixed salary - Annual Payroll $30,000,000. The budget for Computer use is $8,750,000

Annual Variable Costs include: Marketing $2,300,000

Blueprinting/Design $2,450,000

Supplies $1,250,000

Software $1,285,000

Wardlaw has submitted a bid on an engineering project,

Wardlaw experiences considerable seasonal variation in its activity and is preparing

a bid for a project. This particular project will be done during a slack period of the

year.

Required:

Part I

Suggest how the fixed costs should be handled in the bidding approach to projects? Suggest methods for charging the Variable costs. Your answer must address - Cost behavior

• Cost drivers
• Direct Costs
• Indirect Costs
• Non-financial issues to be considered

Part II

Assume that the company wins the bid and performs the job on a profit-able basis, consistent with the profit targets projected in the bid. Several months later, the customer contacts Wardlaw and requests a bid to do another job. This project, however, must be done during a peak season. What should Wardlaw's management do? How do you think the cust-omer will respond?

How does the additional information change what you need to consider in advising the management of Wardlaw?