Facts:

The W Company Civil Engineers consists of two divisions. The divisions are Water and Infrastructure. The company sells engineering services to various customers. The following are the bill rates for the various staff classifications:

The two divisions expect to bill the following hours:

• Water- 10,000 hours, vice president at 10% of the time, 20% of Senior Engineer time 10% to Associate engineers and remaining to Staff Engineers.
• Waste Water- 6,000 hours, vice president at 12% of the time, 20% of Senior Engineer time, 5% to Associate engineers and remaining to Staff Engineers.

The Direct Labor costs per hours are as follows:

The utilization (billable ratio to total hours) for each staff members are as follows:

The company has the following other costs:

Assume that there are 2080 hours per year that each engineer can work including vacation and other benefit hours.

Assignment:

You are an outside consulting firm and the company Board and the CFO have engaged you. The goal of the Board and the CFO is to improve profitability of the divisions and company. Therefore, to accomplish that the following questions should be answered during the presentation and the write up.

(1) Develop a staffing plan based on the expected hours to be billed. This means, how many of (Full Time Equivalents) the various staff types should be there to accomplish the set goals or billable hours.

(2) Develop an Income Statement budget for the company and the two divisions. All overhead costs can be allocated using percentage of revenues.

(3) What can the company do to allocate costs differently to the divisions? Prepare a revised Income statement by division.

(4) Make recommendations to improve profitability.