CASE 7-1 PRIMUS CONSULTING GROUP [LO 1, 2] Primus is a firm of consultants that focuses on process reengineering and quality improvement initiatives. Northwood Industries has asked Primus to conduct a study aimed at improving on-time delivery. Normal practice for Primus is to bill for consultant time at standard rates plus actual travel costs and estimated overhead. However, Northwood has offered a flat $75,000 for the job. Currently, Primus has excess capacity so it can take on the Northwood job without turning down other business and without hiring additional staff. If normal practices were followed, the bill would be:

Classification Hours Rate Amount

Partner 90 $260 $23,400

Senior consultant 125 $160 20,000

Staff consultant 160 $ 90 14,400

Travel costs 21,000

Overhead at $30 per nonpartner hour 8,550

Total $87,350

Overhead (computer costs, rent, utilities, paper, copying, etc.) is determined at the start of the year by dividing estimated annual overhead costs ($2,400,000) by total estimated nonpartner hours (80,000 hours). Approximately 20 percent of the total amount is variable costs. All Primus employees receive a fixed wage (i.e., there is no compensation for overtime). Annual compensation in the previous year amounted to the following:

Per Hour

Partner $250

Senior consultant $150

Staff consultant $ 80

REQUIRED What will be the effect on company profit related to accepting the Northwood Industries job? What qualitative factors should be considered in the decision whether to accept the job or not?