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:
Vice President $215/hour Senior Engineer $200/hour Associate Engineer $170/hour Staff Engineer $160/hour.
The two divisions expect to bill the following hours:
Water- 12000 hours, vice president at 10% of the time, 30% of Associate/Senior Engineer
time and remaining to Staff Engineers.
Infrastructure- 5000 hours, vice president at 20% of the time, 20% of Associate/Senior Engineer time and remaining to Staff Engineers. The Direct Labor costs per hours are as follows: Vice President $80/hour
Senior Engineer $60/hour
Associate Engineer $$50/hour
Staff Engineer $40/hour.
The utilization for each staff members are as follows: Vice President 65%
Senior Engineer 85% Associate Engineer 90% Staff Engineer 92%.
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The company has the following other costs: Admin Salaries
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$100,000
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Rent
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$110,000
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Utilities
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$9,000
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Benefits
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$99,000
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Note: Assume that all employees are on salary and they are employed for 2080 total hours per year.
You are an outside consulting firm and the company Board and the CFO have engaged you. The ultimate goal of the Board and the CFO is to improve profitability. To accomplish that the following questions should be answered in the write up. The report should be something that would be given to a Board of Directors and a CFO.
(1). Develop an Income Statement budget for the company and the two divisions. All overhead costs can be allocated using percentage of revenues for each division.
(2). Develop a staffing plan based on the expected hours to be billed. This means, how many of the various staff types should be there to accomplish the set goals.
(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.