Project Case Study Assignment
Background
ABC Consulting, LLC is a consulting company that offers three primary services. Those services include "Business Planning", "Compliance Services" and "Continuous Improvement Services". The company currently employs 32 people. The company was founded in 1991. Their fiscal calendar is on a calendar year basis (January - December).
Below is a table showing some basic information for ABC for the year ended 2010:
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Other Indirect Costs
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Non-Division Specific
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Rent
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$18,000.00
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Taxes
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$22,764.20
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Utilities
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$6,000.00
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Additionally, below is a table showing some prior year data.
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Year
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# of Clients
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# of Employees
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Total Costs
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2000
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150
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14
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$1,880,561.15
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2001
|
285
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17
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$2,044,088.21
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2002
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300
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18
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$2,151,671.80
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2003
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420
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20
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$2,390,746.44
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2004
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425
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20
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$2,570,695.10
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2005
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450
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20
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$2,764,188.28
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2006
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450
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23
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$2,909,671.88
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2007
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550
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25
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$3,062,812.50
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|
2008
|
605
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28
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$3,093,750.00
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2009
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650
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31
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$3,125,000.00
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Using the data above, please do the following:
1. Conduct a regression analysis on the prior year data. What independent variable (clients or employees) is a better predictor of total company cost? Explain your answer. Include in your answer the regression output.
2. Based on your answer to question #1, and again using data from your regression output, estimate the variable cost per activity and total fixed costs for ABC Consulting. Use the 2010 actual results to determine your quantity of the variable activity (i.e., clients or employees). If you suggest that "clients" are a better fit, you will use 660 clients. If you feel "employees" area a btter fit, you will use 32 employees.
lients # of Employees Total
3. Now that you have estimates for variable costs and fixed costs, build a contribution formatted Income Statement in good form. Build this Income Statement based on either 660 clients, or 32 employees (depending on what you decided in question #1). Build this Income Statement so that 20 there is a column for Annual Totals, a column for Per Unit values, and also a column showing variable cost and contribution margin as a percent of sales. See the example below. Note the numbers below are just for example purposes and don't reflect data from your project:
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ABC Consulting, LLC
Income Statement
For year ended Dec. 31, 2010
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|
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1,000 PerUnit
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|
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Sales
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$1,000,000.00
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$1,000.00
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|
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Variable Costs
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$750,000.00
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$750.00
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75%
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Contribution Margin
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$250,000.00
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$250.00
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25%
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Fixed Costs
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$ 200,000.00
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$200.00
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Operating Income
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$ 50,000.00
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$50.00
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Tax (rate is 30%)
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$ 15,000.00
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Net Income
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$ 35,000.00
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4. Based upon the Income Statement you created in question #3, and this additional information, answer the following questions:
Additional Information:
• Assume a tax rate of 30%
• Assume that management desires a $250,000 Net Income (after taxes)
Answer the following:
a. Breakeven point in units
b. Breakeven point in sales dollars
c. Targeted point in units
d. Targeted point sales dollars
e. Margin of safety in sales dollars
f. Margin of safety ratio
5. Now assume that management is considering adding a fourth division to the company. Following are the assumptions from management:
a. Name of the proposed division is "Bookkeeping & Payroll"
b. Average revenue per client would be $4,200 per year, and it is estimated that there would be 35 clients in the first year
c. 1 full-time and 1 part-time (half time) employee would be added to work directly in this new division
d. The combined annual salary for the new staff added would be $90,000.
e. It is estimated that $42,000 in addition "indirect" charges would be added to the company
f. The new division would add $5,000 in new depreciable equipment. This new equipment would have a $500 salvage value and have a useful life of three years
g. Annual supplies for this new division are estimated be $3,500
h. Annual Other Misc. Expenses for this new division are estimated to be $8,000
Conduct a differential analysis and make a recommendation to management on whether or not you think the new division should be added. Support your recommendation with the data from your differential analysis. Also consider what kinds of non-financial factors should be considered. As a part of your answer show your analysis.
6. Build a budgeted Income Statement for 2011. Again, use the "Contribution" format. Make the following assumptions:
a. Total number of clients is 765, and the weighted average revenue per client is 2% higher than it was for 2010.
b. Use the same variable cost per unit of activity that you calculated in question #2.
c. Assume $100,000 more in fixed costs than your regression output from #2 estimated.
7. Assume that the following data represents actual results for 2011. Using a format similar to that on page 424 in your text, put together the "Flexible Budget Variances" and "Sales Activity Variances".
a. Actual number of clients was 750, and the weighted average revenue per client was $5,000.
b. Actual variable cost per client was $2,700.
c. Actual fixed costs were $1,300,000.
8. The balanced scorecard approach to measurement and management requires that companies develop both financial and non-financial performance indicators. Using Exhibit 12-4, on page
514 in your text, develop performance measures (for each of the four categories) for ABC Consulting. The four categories are (1) Financial; (2) Customers; (3) Processes; (4) Competence. Include in your answer how you will measure performance for your areas. Make sure you're
specific about measurement. Come up with 2 performance indicators for each category.
Instructions
1. Answer the questions as required within the project above.
2. Your answers need to be in the form of a report
3. You should submit one Word document (report) for this project.
4. You should include all necessary tables, charts, graphics, etc., in your Word document. Professionalism and clear communication is important.
5. You should submit via Blackboard your Excel working papers. But, keep in mind that I need to be able read your Word document (report) without needing to read the Excel file. I'll use the Excel file to prove out calculations if needed.
6. Your report needs to be double-spaced.
7. Your report needs a cover page. Use the APA sixth edition formatting for your cover page.
8. You need to submit both your Word documents and Excel files to Blackboard electronically.
9. Use the following naming convention for the files you upload. Last name_first initial_case2.doc. Naturally you'll use the appropriate file suffix (.docx, .xlsx) depending of the software you are using.