The Survey Masters LLC copy

1. The reason that smaller projects appear to be more profitable is because of the cost drivers that Linda Evans chose to use to allocate the overhead costs. It is unfair to allocate an equal amount of overhead cost to the different kinds of projects, when the smaller projects cost more in days of data collection than the larger reports do. This is especially important to consider because the days of data collection is directly related to the project salaries, which is the cost driver for the allocation of overhead.
Large Projects
600 days/20 projects = 30 days per project
Small Projects
3600 days/100 projects = 36 days per project

2. $640,000/160 trips = $4000 per trip $370,000/4200 days = $88.095 per day $390,000/1300 pages = $300 per page
Overhead Allocation

Largest 20 Projects
Smallest 100 Projects
Survey Proposed and Design
50 trips x $4000 per trip = $200,000
110 trips x $4000 per trip = $440,000
Data Collection and Tabulation
600 days x $88.095 per day = $52,857
3600 days x $88.095 per day = $317,142
Analysis and Report Preparation
250 pages x $300 per page = $75,000
1050 pages x $300 per page = $315,000
Total Overhead
$327,857
$1,072,142

Largest 20 Projects
Smallest 100 Projects
Revenue
$1,300,000
$1,500,000
Salaries
($400,000)
($400,000)
Overhead Allocated
($327,857)
($1,072,142)
Net Income
$572,143
$27,858
Profitability per project
(Net Income / # of projects)
$28,607.15
$278.58
Based on our calculations, it’s very clear that larger projects are much more profitable than the smaller projects, mainly because of the allocation of overhead costs.
3. Survey Masters should definitely not take all projects offered to the company because according to our analysis, the larger projects are more profitable than the smaller projects. The calculations in question 2 show that the 20 large projects exceeded the 100 small projects by about 20.54% or $544,286. There is no denying that the company should emphasize more on the larger projects than the smaller