City Appliance Ltd operates an appliance service business with a fleet of trucks dispatched by radio in response to calls from customers. The company’s profit margin has dropped steadily over the last two years, and management is concerned that pricing rates for time and material may be out of date. According to industry trade magazines, the company should be earning £8.50 per hour of repair service time, and a profit
of 10% of the invoice cost of parts used. The company maintains a large parts inventory in order to provide a prompt repair service for customers. Costs associated with repair work and with the parts inventory over the past year are provided below:

During the past year, customers were billed for 20,000 hours of repair time.

Required
1. Using the data above, compute the following:
(a) The rate that would be charged per hour of repair service time using time and material pricing.
(b) The material loading charge that would be used in billing jobs. The material loading charge should be expressed as a percentage of the invoice cost of parts.
2. Assume that the company adopts the rates that you have computed in Requirement 1 above. What would be the total price charged on a repair that requires 112 hours of service time and £108 in parts?
3. During the past year, the company billed repair service time at £20 per hour and added a material loading charge of 35% to parts. If the company adopts the rates that you have computed in Requirement 1 above, would you expect the company’s profits to improve? Explain.

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Repair service manager - salary Parts manager - salary Repair technicians - wages Office assistant - salary Depreciation - trucks and equipment Depreciation buildings and fixtures Retirement benefits (15% of salaries and wages) Health insurance (5% of salaries and wages) Utilities Truck operating costs Property taxes Liability and fire insurance Supplies Invoice cost of parts used Total cost Repairs £25,000 180,000 9,000 15,400 6,000 32,100 10,700 2,600 36,000 900 1,500 800 £320,000 Parts £- 20,000 3,000 17,500 3,450 1,150 12,000 3,400 1,900 600 210,000 £273,000