Directions: Test your knowledge of this topic by selecting the best answer for each of the following questions. You will use the Booz Allen Hamilton model for these questions. (Important: Do not click the Reset button in the model before entering new data.) Start this quiz after completing step 2 in the Quiz Preparation box in the Commentary. When you click the Submit button, you will see your score and the results will go to your instructor.

After each question, you will receive feedback and the correct answers. It is important to update your financial model before moving on to the next question. Quiz 1.4 has 3 questions, so be sure to submit all three answers. If you leave the quiz and return before submitting the last answer, the quiz will resume with the next question.

1. The sales department tells management that they can increase revenue by 20 percent by increasing sales 20 percent. However, the scheduling department says that to achieve that number of hours, they will have to buy upgraded software for $200,000 that will allow for better scheduling of staff hours between engagements. Management says that there is no need for a new computer program, because to increase capacity and keep the contribution margin and price the same, they can increase capacity by hiring more consultants. Because they are constantly adding new consultants, there are no incremental hiring costs. What happens to profits when we enter a new total number of hours sold to reflect the increase into our model? What happens to the risk at BAH vs. Comfy Chair—do you think the strategy of hiring more consultants rather than investing in new equipment is a higher or lower risk than Comfy Chair's strDirections: Test your knowledge of this topic by selecting the best answer for each of the following questions. You will use the Booz Allen Hamilton model for these questions. (Important: Do not click the Reset button in the model before entering new data.) Start this quiz after completing step 2 in the Quiz Preparation box in the Commentary. When you click the Submit button, you will see your score and the results will go to your instructor.

After each question, you will receive feedback and the correct answers. It is important to update your financial model before moving on to the next question. Quiz 1.4 has 3 questions, so be sure to submit all three answers. If you leave the quiz and return before submitting the last answer, the quiz will resume with the next question.

1. The sales department tells management that they can increase revenue by 20 percent by increasing sales 20 percent. However, the scheduling department says that to achieve that number of hours, they will have to buy upgraded software for $200,000 that will allow for better scheduling of staff hours between engagements. Management says that there is no need for a new computer program, because to increase capacity and keep the contribution margin and price the same, they can increase capacity by hiring more consultants. Because they are constantly adding new consultants, there are no incremental hiring costs. What happens to profits when we enter a new total number of hours sold to reflect the increase into our model? What happens to the risk at BAH vs. Comfy Chair—do you think the strategy of hiring more consultants rather than investing in new equipment is a higher or lower risk than Comfy Chair's strategy of investing in equipment? In order to successfully complete the remaining questions, use this information to update the financial model before proceeding to the next question. For each subsequent question, also insert the correct information if you did not answer correctly.
a. Profits increase 63.5 percent, and BAH's risk is higher.
b. Profits increase 22.4 percent, and BAH's risk is lower.
c. Profits increase 38.2 percent, and BAH's risk is higher.

d. Profits increase 38.2 percent, and BAH's risk is lower.

 

2. Management believes that they can increase the price per hour by 10 percent in this new situation and improve profits by 10 percent, but the sales department cautions that the price increase may decrease sales by 15 percent because they will be higher-priced than the competition (and they are in a highly competitive business, as seen in the business model). Management says that sales will not decrease because in the consulting business, firms do not compete on price but rather on reputation, results achieved, and customer satisfaction. A higher price in the consulting business could imply that they are better than the competition. Using our model, what will happen to profits if both of their forecasts are correct? Whose forecast is probably correct? (Note: You need to calculate both scenarios—management’s price increase with no change in overall sales, and look at profits; and then sales’ prediction that total sales will decrease with the price-per-hour increase. Compare the results, and select your answer from the four choices.)
a. sales: profits decrease 22.4 percent
b. management: profits increase 49.2 percent
c. sales: profits increase 5.4 percent
d. management: profits increase 41.5 percent

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