WCB Co. Part #4 Cost-Plus Pricing Goal: To use the Cost-Plus Pricing method to generate a quote for a new project. Information: WCBs client has continued to ask the board to provide them with a power systems harmonics analysis. Despite the reticence of several board members to enter this new market, the board voted to at least provide a formal quote for the project. They have asked you to use the cost estimates already generated (see WCB Part #1) to calculate a quote that will earn the WCBs 15% minimum rate of return. Since the price originally offered by the customer is too low, you have decided to use the Cost-Plus pricing method to generate your quote. The manager of the Data Gathering department has determined that approximately 40% of her departments manufacturing POHR ($17.47 per DL hour) comes from fixed costs while the rest are variable. The manager of the Analysis department has determined that only 15% of his departments manufacturing POHR ($18.38 per computer hour) is from fixed costs. Since the client approached WCB, no selling costs will be incurred. However, you feel that the support costs (or administration and general marketing costs) should be allocated to this special project just like they would be allocated to any other project. Finally, the partners believe that the project will require an investment of $10,000 in training costs and $15,000 in opportunity costs (i.e. projects that will lost because of the time being spent on the current project). Assignment: 1. Identify key assumptions: What key assumptions have been made in preparing to generate a quote for this project? What, if any, additional assumptions will you need to make to finish the sales price? Do you feel that these assumptions are valid? Explain. 2. Calculate the Unit Production Cost for the power systems harmonics analysis requested by WCBs client. Use the cost estimates from WCB Parts 1 & 2 as the basis for your calculations. Assume that the company has decided to use DL hours as the driver for Data Gathering department and computer hours for the Analysis department. 3. Calculate the total S&A expenses that will be assigned to the project. 4. Calculate WCBs markup percentage for the new project. 5. Using your calculations from questions 2-4, determine the sales price for the special project. 6. Do you think that the client will accept the quoted price? Explain. Remember that you allocated $1,541,667 of administrative support costs to the Data Gathering department and $958,333 to the Analysis department in WCB Part #3. Use these amounts and the budgeted drivers for those departments to allocate administrative costs to the current project. Unfortunately, this breakdown is so new that the company does not have any information about which portion of the S&A costs are fixed and which are variable, so just include it all in your calculation of the appropriate sales price.