YSL marketing is a small firm located in Seattle washington. On behalf of its cl
ID: 2479548 • Letter: Y
Question
YSL marketing is a small firm located in Seattle washington. On behalf of its clients, the firm conducts focus group meetings, telephone and mail opinion surveys, and evaluation of marketing strategies. The firm has three partners and six non partner professionals. At the start of the year, the company estimated total professional compensation (for the three partners and six non-partner professionals) to be $1,600,000. To evaluate the profitability of its engagements, the firm traces actual professional compensation to each engagement along with so-called direct charges. Direct charges consist of travel costs and costs of conducting surveys (e.g, paper and postage.) In addition, each engagement receives an allocation of overhead based on professional compesation charges. Overhead consists of all support costs including rent, utilities, and depreciation of office equipment. At the start of the year, these cost were estimated to be $496,000. Recently, Connie Bachmann, a YSL partner, was asked to conduct a survey for Surenex, e new high-tech company. Connie is excited about this opportunity since she expects that this hot small company will, in three to fve years, become a hot big company with premium billing opportunities. At this point, however, Connie wants to quote a low fee since Surenex has cash-flow problems and is clearly unwilling to pay YSL's normal rates. On most jobs, YSL's fee is 1.5 times professional compensation. In addition, the company is reimbursed for all out of pocket costs related to travel and paper and postage costs for surveys. YSL is in high demand, and ig it undertakes the Surenex job, it will have to turn down another potential cilent. Connie estimates that the Surenex engagement will require the followign costs in addition to overhead support costs: Connie Bachman (partner), 40 hours at a salary averaging $120 per hour = $4,800. Ambrose Bundy (professional staff), 100 hours at a salary of $40 per hour= $4,000 Direct charges for actual tralvel, mailing, and postage= $3,000 Total above= $11,800. Require: a. Caculate the expected full cost of the Surenez engagement, including an allocation of overhead. Round answer to nearest dollar and predetermined overhead rate to two demical places. b. What is the lowest amount that Connie can bill on this engagement without hurting company profit. c. In deciding on a proce for engagement, what should Connie consider in addition to the amount calculated?(b)Explanation / Answer
b) minimum amount that can be billed will be its direct variable cost, i.e cost other then overhead
= 14528- 2728, = 11800
Add: contriburion loss on other projects =1672
Minimum Bill = 13472
Contribution loss calculated as
Fees = 8800 x1.5, = 13200
Less: cost of proffesional compensation recovered = 8800
less: overheads to be recovered = 2728
contribution loss = 13200-8800-2728, =1672
MInimum bill should be = 11800+1672, = 13472
as company will recover atleast variable cost on project, Further it has been said it is high on demand it can easily recover its overheads
a) Particulars Amount Partner Salary 4800 Professional staff salary 4000 Professional compensation 8800 Direct charges for travel, mailing and postage 3000 Overhead absorbed on basis of professional compensation 2728 = yearly Overheads / yearly professional compensation = 496000/1600000 31 % on professional compensation Total cost of project 14528Related Questions
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