PRIMUS CASE

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Colorado State University, Global Campus *

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5440

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Management

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Feb 20, 2024

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xlsx

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Case 7-1: Primus Consulting Group Classification Hours Rate Amount Partner 90 $260 $ 23,400 Senior Consultant 125 $160 20,000 Satff Consultant 160 $90 14,400 Travel Costs 21,000 Overhead @$30/Nonpartner hour 8,550 Total $ 87,350 Per Hour Partner $250 Senior Consultant $150 Staff Consultant $80 Required: Primus is a firm of consultants that focuses on process reengineering and quality improvement in study aimed at improving on-time delivery. Normal practice for Primus is to bill for consultant ti overhead. However, Northwood has offered a flat $75,000 for the job. Currently, Primus has exc turning down other business and without hiring additional staff. If normal practices were followe Overhead (computer costs, rent, utilities, paper, copying, etc.) is determined at the start of the ye by total estimated nonpartner hours (80,000 hours). Approximately 20 percent of the total amoun (i.e., there is no compensation for overtime). Annual compensation in the previous year amounte What will be the effect on company profit related to accepting the Northwood Indu decision whether to accept the job or not?

nitiatives. Northwood Industries has asked Primus to conduct a ime at standard rates plus actual travel costs and estimated cess capacity so it can take on the Northwood job without ed, the bill would be: ear by dividing estimated annual overhead costs ($2,400,000) nt is variable costs. All Primus employees receive a fixed wage ed to the following: ustries job? What qualitative factors should be considered in the

Primus Consulting Group Case Study Incremental Revenue $75,000 Less: Incremental Costs: Travel Costs $21,000 Variable Overhead 1,710 Total Incrmental Costs $22,710 Incremntal Profit $52,290 Northwood has offered Primus a job of $75,000 to improve on-time delivery. The job offer is less Primus. However, the group should still conduct an incremental analysis to decide whether to acc consider only relevant costs and revenue that will occur when taking on the proposal. The labor c irrelevant. In addition, the company has access capacity and can accept the offer without shutting The offer by Northwood would potentially generate an incremental profit of $52,290 for Primus C the project when it has access capacity will not impact its existing business projects. Hence, the co However, Primus must also consider other qualitative factors before making a decision. Acceptan stream for Primus. It will provide Primus an opportunity to show its expertise. But, the business m future. Other clients finding out about the Northwood deal could also demand similar proposals le

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Calculation Annual Overhead Non Partner Hours Total non partner rate/hours Variable Overhead s than the routine $87,350 charged by cept or reject the offer. The group should costs, which are fixed expenditures, are down other business activities. Consulting Group. The company taking ompany should consider the proposal. nce of the job could open a new revenue might suffer higher rates issues in the eading to future business at higher rates.

2,400,000 80,000 30 20%

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