Tom’s Shoe Repair provides a variety of shoe and repair services. Analysis of monthly costs revealed the following cost formulas when direct labor hours are used as the basis of cost determination:
Supplies: y = $0 + $4.00X
Production supervision and direct labor: y = $500 + $7.00X
Utilities: y = $350 + $5.40X
Rent: y = $450 + $0.00X
Advertising: y = $75 + $0.00X
a. Prepare a flexible budget at 250, 300, 350, and 400 direct labor hours.
b. Calculate a total cost per direct labor hour at each level of activity.
c. Tom’s employees usually work 350 direct labor hours per month. The average shoe repair requires 1.25 labor hours to complete. Tom wants to earn a 40 percent margin on his cost. What should be the average charge per customer, rounded to the nearest dollar to achieve Tom’s profit objective?