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Problem $4-52($Algo$)$ Pricing Decisions $($LO $4-2)$

Frederick's Motivational Workshops $($FMW$)$ offers hands$-$on workshops by noted experts on various business and life$-$skill topics, such as sales techniques, negotiation, and leadership. FMW works exclusively with corporate clients, so that the participants in any one workshop are all from the same organization. Halleck Industries has contacted FMW about offering one or more workshops on change management to be hosted on the FMW campus. Halleck is considering three alternatives. The first would be a single workshop for $10$ senior leaders. The second would be for $5$ workshops for $90$ functional area managers $(18$ managers per workshop$).$ The third would be $10$ workshops for $150$ fast$-$track managers in the operations and human resources areas. At this time, Halleck plans to only select one, if any, of the three alternatives based on the proposed price from FMW$.$ The financial staff at FMW has put together the estimated differential cost related to the three alternatives:

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Initial costs to design workshop $($independent of the number of workshops$)$$ $5,900$Materials and other costs per participant $($notes$,$ meals, events, and so on$)210$Differential Direct Labor Costs:$$One workshop$ $14,000$Five workshops$46,000$Ten workshops$60,000$

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In addition to the preceding differential costs, FMW allocates fixed general and administrative costs to workshops such as these on a direct$-$labor$-$cost basis, at a rate of $125$ percent of direct labor costs $($excluding design costs$).$ For example, if direct labor costs are $$100,$ FMW would also charge the job $$125$ for general and administrative costs. FMW prices workshops at cost plus a $25$ percent fee with a $10$ percent surcharge on total costs $($not including the fee$)$ if only one workshop is given. Cost equals the design costs plus materials costs plus differential labor costs plus allocated fixed costs for the purpose of setting the price to quote prospective customers. FMW is not limited by any labor or other capacity constraint.

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Required:

a$.$ Assume FMW$$s bid equals the total cost, including fixed costs allocated to the job, plus the $25$ percent markup on cost $($along with any appropriate surcharge$).$ What should FMW bid for each of the alternatives being considered by Halleck Industries?

b$.$ Compute the differential cost $($including design costs$)$ and the contribution to profit for each of the three alternatives.

c$.$ The human resources director at Halleck is looking over the bids and tells FMW that the bids for the $1$ or $5$ workshop alternatives are acceptable, but the bid for the $10$ workshops is simply too high. Instead, Halleck says it will accept the $10$ workshop proposal if the bid is $80\%$ of the FMW$\text{'}$s proposed bid. The sales director at FMW is concerned about deviating from company practice.

c$-1.$ What would be the contribution to profit for each of the three alternatives?

c$-2.$ Considering only the financial impact and not current bidding practice, should FMW lower the bid as requested by Halleck Industries?

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