Posted: January 31st, 2022

Imagine you’re assigned by the company’s CFO to consult on a new indirect rate structure that will be effective starting next year

Pfizer inc.

• Imagine you’re assigned by the company’s CFO to consult on a new indirect rate structure that will be effective starting next year. Using facts from the company’s latest 10k report, what are some factors that need to be considered when the company ultimately enacts the new indirect rate structure? You can frame your thoughts around Fringe, Overhead, and G&A cost considerations, or add commentary on something else that may impact indirect cost allocations. The costs for each industry or company are unique! See the following format for an example.

• For the Johnson & Johnson explain how should calculate each indirect rate – give two examples of costs that should be included in the pool (the numerators), and the base (the denominators) in the rate calculation.

Example:
• Ford Motor Company
• Fringe – Substantially all of the hourly employees in Ford’s Automotive operations are represented by unions and covered by collective bargaining agreements (Ford Form 10k, page 14). The employee benefits (vacation, healthcare, retirement benefits, etc.) for unionized employees may differ substantially from non-unionized employees and also from salaried employees. Consider having multiple fringe rates.
• Overhead – Ford has locations all over the world including the US, Canda, Mexico, South Africa, China, Italy, England, etc. I believe the cost of factory overhead in each of those locations is variable based on how much real estate, utilities, and maintenance costs in each country. Overheads should be applied at more location-specific rates to most properly caclulate total cost for a car produced.
• G&A – As primarily a manufacturer, Ford purchases a wide variety of raw material from numerous suppliers around the world for use in the production of, and development of technologies in, Ford’s vehicles. A significant amount of cost in Ford’s end-product is driven by material cost. A Value Added G&A base would best capture and allocate the cost of materials procurement and subcontract management.

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Pfizer, Inc.

• Assume you’ve been tasked by the company’s CFO with advising on a new indirect rate structure that will go into effect next year. What are some of the issues that must be considered when the company finally implements the new indirect rate structure, based on facts from the company’s most recent 10k report? You can organize your views around Fringe, Overhead, and G&A cost factors, or you can add remark on something else that may have an impact on indirect cost allocations. Each business or firm has its own set of costs! As an example, consider the following format.

• Explain how each indirect rate should be calculated for Johnson & Johnson – offer two instances of expenditures that should be included in the pool (the numerators) and the base (the denominators) in the rate calculation.

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