ON THE FLY#2

ON THE FLY#2 150 150 Affordable Capstone Projects Written from Scratch

ON THE FLY#2: “GOTCHA!”
Doug Terry, one of the two account supervisors in your group, walks into your office one fine
morning and proceeds to tell you that the Marketing Director for High West Financial Services, one
of the clients in your account group, is questioning the agency’s billing practices. Specifically, the
client is questioning the hourly charge-out rates for employees working on the account under the
agreed contract/agency services agreement.
As the Group Account Director on the High West business, you – along with the agency’s CFO –
handled the contract negotiations with High West that resulted in the approved contract/agency
services agreement that sets forth and contains the methodology for calculating agency time of
staff on the account in an Agency Fee Addendum. Per the contract, the client has agreed that the
agency will charge out time-of-staff on the High West account using a “multiplier” of 2.50 on
employee direct salaries to cover employee direct salaries, benefits, overhead and mark-up of
25% (on direct employee costs). The formula for the contractually agreed fully allocated
employee cost charge-out rate on High West follows:
Direct Salary + Benefits (20%) + Overhead (Direct Salary x 1.0) +25% (direct costs) = Employee Hourly
1800 Annual Hours Charge Out Rate
Doug proceeds to tell you that the agency Account Supervisor (AS) on the High West account
regularly plays golf with the client’s Advertising Services Manager, and at some point,
inadvertently told her that she makes \$62,000 working at the agency. And while this all seemed
very innocent and innocuous at the time, the client files this information away and quietly begins to
work on an independent analysis of the agency charge-out rates on High West. What could
possibly go wrong?
Using the salary information provided, the Advertising Services Manager computes that if the AS
works 40 hours per week, that the AS’s time on the High West Financial account would total 2,080
hours per year. Doing the math using the \$62,000 salary information she obtained purely through
happenstance from the AS, the High West Advertising Services Manager computes that the
Account Supervisor’s charge out rate is \$29.80/hour. The Advertising Services Manager goes back
and checks the “math” against the contractual charge out rate of \$86.11 as outlined in the Agency
Fee Addendum to the and arrives at the conclusion that the agency is overcharging High West
\$56.31/hour for the Account Supervisor’s time on the account. The Advertising Services Manager is
recommending that High West conduct a full audit of the agency’s charge-out rates.
The Marketing Director, armed with this information, and the Marketing immediately calls Doug
Terry to set up a meeting the following morning at 9:00 a.m. and wants a “full and transparent
review” of the agency’s billing practices and charge out rates for employees on the High West
account.
THE “ON THE FLY 3@” QUESTION
Is the Advertising Service Manager’s assertion regarding the agency’s “over charging” on
time-of-staff on the High West account correct?
The assignment is due Tuesday, October 23 @ 5:00pm EDT
On The Fly #2: Gotcha! The only ADV 330 assignment with a “right /
wrong” answer … it’s all or nothing on this one.
STUDENT NAME:
THE BIG QUESTION
Is the Advertising Service Manager’s assertion regarding the agency’s “over charge”
correct?
YES _____
NO _____