Profit and Loss Statement

Example

Exercise 1A

Exercise 1: Determine your breakeven labor multiplier A) + Assume the utilization rates do not changes + For each employee enter an hourly rate + Look at the hourly salary as a starting point + Adjust the hourly rates until you reach the break even point (zero earnings before taxes ± $2000) + Write down your gross revenue and your breakeven labor multiplier for Case A Note: The billing rate for each title classification should be the same for the entire classification (All Staff Engineers should have the same hourly billing rate, All Project Engineers should have the same hourly billing rate, etc.).

Exercise 1B

Exercise 1: Determine your breakeven labor multiplier B) + Increase the utilization of the staff engineers and CAD operator to 100% + Adjust the hourly rates until you reach the break even point (zero earnings before taxes ± $2000) + Note the differences between this and previous calculations + Write down your gross revenue and your breakeven labor multiplier for Case B Note: The billing rate for each title classification should be the same for the entire classification (All Staff Engineers should have the same hourly billing rate, All Project Engineers should have the same hourly billing rate, etc.). 185

Exercise 2

Exercise 2 Scenario: + Your company has been losing a lot of proposals in the last 4 months + The office currently has enough work but will run out of work in 6 months if you don't win a few good sized contracts in the next 3-4 months. + As a result of the lost proposals Maria, the office manager has assigned Harry additional marketing and proposal coordinating duties to assist her in capturing new business + At the current utilization and fee rates the company is barely showing minimal profits as shown ($176k earnings before taxes, Gross Profit < 7%) + Maria estimates that Harry's utilization will reduce to 40% + Maria has asked everyone in the office to pitch in to make ends meet until things turn around + Project Engineers can't afford to reduce their client marketing efforts under the circumstances but believe they can get their utilization up to 85% + The question remaining is how much more work will the staff engineers & CAD operator have to do to keep the company at the break even point Your task: + Change Harry's availability to 40% and the Project Engineer's to 85% + Adjust the availability for the Staff Engineers and CAD Operator until you achieve Gross Profit before taxes of at least 12.0%. The availability (utilization) for each title classification should be the same for the entire classification (i.e., you would not have diffierent utilization rates for each person listed as a Staff Engineer). + Record the availability of the Staff Engineers and CAD Operator needed to get to a minimum 12% Gross Profit

Exercise 3

Exercise 3: Determine your Utilization Rates to achieve a labor multiplier that will yield a Gross Profit of 400,000 for the upcoming business year + The utilization rates will be the same for each job classification, understand the higher the position, the lower the utilization rate. Utilization rates for Principal and non-production staff are already set. + The hourly rates are set based on your current contracts + Look at the earnings before taxes before you start and determine your break even multiplier, then add in the profit to detemine your target multiplier. Use this information to assist you in determining how much revenue each job classification must generate to meet your target Gross Profit + Adjust the utilization rates until you reach the target Gross Profit + Write down your gross revenue and your Average Labor multiplier