Your engineering consulting firm is in the middle of a very profitable year. Yet

Question

Your engineering consulting firm is in the middle of a very profitable year. Yet, you have some engineers that have some idle time. You can either give them time off or find some work for them. The variable cost for the engineers is $30/hour and the standard cost is $55/hour. A possible job has become available. Your engineering estimator tells you that it will take at most 250 hours, at least 150 hours and most likely 180 hours. How would you decide how much to charge? What is the least you would be willing to charge? Use real numbers wherever possible. Justify your steps.

Explanation / Answer

Answer:

Our engineering consulting firm is in the middle of a very profitable year. Yet, we have some engineers that have some idle time. You can either give them time off or find some work for them.

A possible job has become available.

Our engineering estimator tells us that it will take at most 250 hours, at least 150 hours and most likely 180 hours.

Decision on charging process: We would like to charger to our customers as around 20% margin on the total cost to the organization. So that the organization can maintain their profitability.

So total hours of the work = Average of the hours as = (Max + 4* Most Likely + Least) / 6

= (250 + 4*180+ 150) / 6

= 1120 / 6

= 186.67 = 187 Hours.

So total hours to be charged will be = 187 hours

Rate per hour will be = $ 102 /hour

So total charges for the work = Total Hours * rate per Hours = 187 * 102 = $ 19074 /-

Answer = $ 19074 is the total charge for work.

This is the least that we will willing to charger = $19074

Justofication for this least charges:

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