The Prishtina Consulting Group (PCG) is bidding for a consulting project for the local government. The project
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Question:
The Prishtina Consulting Group (PCG) is bidding for a consulting project for the local government. The project would be staffed as follows:
Staff grade Hrs required No of staff
Junior consultant 1,500 2
Project manager 500 1
IT specialist 300 1
Additional information:
- PCG employs a number of full-time junior consultants who are paid a fixed salary of £38,000 per annum. The staffing plan shows that at least 10 of PCGs junior consultants would be available to join the project if the firm wins the bid.
- PCG’s full time project managers are already fully allocated to other projects. If PCG undertakes the government consulting project, it means that one project manager needs to be removed from another project for which a customer is charged £170 per project manager per hour.
- PCG does not employ IT experts and would need to hire a freelance consultant for the duration of the project. The fee for the freelance consultant is expected to be £84 per hour.
- To derive the above estimates, PCG had to spend £1,000 on a specialized study. If the contract does not proceed the results of the study can be sold for £500.
- Additional travel costs of £20,000 will be incurred if the project is undertaken.
Required
- What is the relevant cost and minimum price at which PCG should offer to undertake the project under the above circumstances? Explain the treatment of each of the items listed in points (1) to (5) above.
- Explain the concept of opportunity cost in a managerial context.
Related Book For
Managerial Economics Theory Applications and Cases
ISBN: 978-0393912777
8th edition
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
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