Reference no: EM131209447
A consulting firm is in the business of preparing detailed multi-client studies that take several months to complete. History has shown for a product such as this, it will take $120,000 in labor and materials costs to prepare a study of this scope. While the database staff, researchers, analysts, and consultants are forecasting and preparing their analysis, the sales staff is marketing the study (sale price is $5,000 per issue). The study is scheduled to be done by December 15th, with shipment on that day to all clients who have purchased the study. Clients were billed at the time the study was ordered, with some of the clients paying as early as September.
Now it is December 30th, the research staff has done all that they can to make the delivery date, but there was a glitch in one of their forecasts and it will take another week to make the edits, rewrite the analysis and get the studies printed.
The study is nearly complete, the sales were made (50 companies have purchased the study) and in fact, much of the cash has already been received (and spent by the firm). The firm needs another $100,000 in profit in order to meet its profit target for the year. Without meeting the profit target, none of the senior managers (including many of those working on the multi-client study) will receive their annual bonuses.
If you were the CFO, what might you suggest when the firm's president (who is also on the same bonus schedule) asks you what can be done with revenue (and expense) recognition?
What are the implications for the next year's profits based on your recommendation to the president?
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