Calculate the total cost of a project or Job and compare that cost with potential revenues.
Information:
One of the company’s best clients has offered WCB $11,000 to perform a power systems harmonics analysis for the client’s primary plant. While your client realizes this is not WCB’s field or expertise, she has been very pleased with WCB’s prior work and appreciates the strong relationship she has with your company.
The partners have estimated that the project will take almost 150 hours to complete. Most of those, 100 hours of data gathering, can be done by junior engineers. The rest of the hours, the analysis portion, will have to be completed by senior engineers. In addition to the 150 basic hours, 24 hours of review and cross-checking will need to be done by the partners to verify the quality of this special project. In addition to the labor costs, the project will also requires about $250 worth of office supplies,
Print outs, etc. These costs are as close as a service firm gets to direct materials.
In addition to the engineering estimates, your accounting staff has put together the following information about the project:
Basic Data
DL cost/Hour
Junior Engineers $20
Senior Engineers $50
Partners $75
Driver Usage Data Gathering Analysis
Direct Labor Hours 104 70
Computer Hours 15 125
Inquiries Made 2 3
Review Hours 4 20
The management team has asked you to estimate the cost of the proposed project. They have also asked you to make a recommendation based on your analysis.
1. Compute the cost of the new job using $27.25 per direct labor hour as the POHR(Pre-determined Overhead rate)
2. Compute the cost of the new job using $30 per computer hour as the POHR.
3. Based on your financial analysis, do you think WCB should accept the special project? Explain. 5
4. Identify implications and consequences: List and explain two potential consequences of accepting the project and two for rejecting the project.1
What effect do these consequences have on your recommendation to accept or reject the project? Explain.