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 $210/hour
Senior Engineer $190/hour
Associate Engineer $170/hour
Staff Engineer $160/hour.
The two divisions expect to bill the following hours:
Water- 11000 hours, vice president at 10% of the time, 30% of Associate/Senior Engineer (15% each) time and remaining to Staff Engineers.
Waste Water- 7000 hours, vice president at 20% of the time, 20% of Associate/Senior Engineer (10% each) 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 60%
Senior Engineer 80%
Associate Engineer 80%
Staff Engineer 90%.
The company has the following other costs:
Admin Salaries $92,000
Rent $110,000
Utilities $7,000
Benefits $96,000
Note: Assume that all employees are on salary and they are employed for 2080 total hours per year.
Project:
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. Therefore, to accomplish that the following questions should be answered during the presentation and the write up.
(1). Develop an Income Statement budget for the company and the two divisions. All overhead costs can be allocated using percentage of revenues.
(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.