5. Greasy Spoon Service repairs commercial food preparation equipment. The follo

Question

5. Greasy Spoon Service repairs commercial food preparation equipment. The following budgeted cost data is available for 2006: Time Material Charges Charges Technicians' wages and benefits$600,000 Parts manager's salary and benefitsS 72,000 Oflice manager's salary and benefits112,00018,000 Other overhead Total budgeted costs $760,000 $200,000 48,000 110,000 Greasy Spoon has budgeted for 10,000 hours of technician time during the coming year. It desires a S64 profit margin per hour of labor and a 50%% profit margin on parts. Greasy Spoon estimates the total invoice cost of parts and materials in 2006 will be $300,000 Instructions 1. Compute the rate charged per hour of labor. 2. Compute the material loading charge. 3. Greasy Spoon has received a request fiom Lime Corporation for an estimate to repair a commercial fryer. The company estimates that it would take 20 hours of labor and $8.000 of parts. Compute the total estimated bill.

Explanation / Answer

To calculate rate charged per hour for Labour, first calculated cost per hour and then add the desired profit margin to arrive at the final rate charged.

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To calculate total loading charge calculate the cost of loading and add the desired profit margin to arrive at loading charges.

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Total cost of 20 hours of labor and $8000 of parts would be

= 20 hours * Rate charged per hour + Cost of parts + Loading charge for parts

= 20 hours * $140/ hour + $8000 + (90% of $8000)

= $2800 + $8000 + $7200 = $18000

Time Charges Total Charges In Dollars Per hour Charges (Total charges divided by 10,000 hours) Technicians Wages & Benefits $600000 $60 Office Manager's Salary & Benefits $112000 $11.2 Other Overheads $48000 $4.8 Total Budgeted Costs $760000 $76 Profit Margin $64 Total rate charged = $76 + $64 = $140

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