Facts:
The W Company Civil Engineers consists of two divisions. The divisions are Water and Waste Water. The company sells engineering services to various customers. The following are the bill rates for the various staff classifications:
• Vice President $200/hour
• Senior Engineer $180/hour
• Staff Engineer $150/hour.
The two divisions expect to bill the following hours:
Water- 10000 hours, vice president at 10% of the time, 30% of Senior Engineer time and remaining to Staff Engineers.
Waste Water- 6000 hours, vice president at 20% of the time, 20% of 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
• Staff Engineer $40/hour.
The utilization for each staff members are as follows:
• Vice President 60%
• Senior Engineer 80%
• Staff Engineer 90%.
The company has the following other costs:
• Admin Salaries $90,000
• Rent $100,000
• Utilities $6,000
• Benefits $76,000
Assume 20% of time for each staff member includes vacation and sick time. 2080 is the annual total work hours.
Project:-
(1). Prepare a static budget for the company.
(2). Assume that the actual utilization came in at the following rates:
• VP-50%
• Senior-82%
• Staff-93%
Based on the above utilization, prepare a flexible budget and calculate the Level 2/3 variances.
(3). What recommendations can be made for the upcoming year in budgeting to the CFO for additional profitability and increasing revenue?
(4). What approaches would your recommendations to increase the company overall utilization of staff and billable hours?
(5). How will your recommendations impact customer profitability or divisional profitability?
(6). The company wants to add a new division. It will be the Construction Division with 3 people. Please discuss pros and cons of adding a division and when you might consider not to add the division.