Computer Repair Inc. uses time and materials pricing, and each year it reviews its rates in light of the actual costs incurred in the prior year. Actual costs incurred last year in connection with repair work and in connection with the company’s parts inventory are shown below:
Customers were billed for 20,000 hours of repair work last year. The company has a target profit of $10 per hour of repair service time and a target profit of 40% of the invoice cost of parts used. During the past year, the company billed repair ser- vice time at $50 per hour and added a materials loading charge of 40% to parts. Management feels these rates may now be inadequate, since costs have risen somewhat over the last year.
1. Using the above data, compute the following:
a. The rate that would be charged per hour of repair service time using time and materials pricing.
b. The materials loading charge that would be used in billing jobs. The materials loading charge should be expressed as a percentage of the invoice cost.
2. Assume that the company adopts the rates that you have computed in (1) above. What should be the total price charged on a repair job that requires six hours of service time and parts with an invoice cost of $500?
3. If the company adopts the rates that you have computed in (1) above, would you expect the company’s profits to improve?

  • CreatedJuly 08, 2015
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