Question

3. You are the accountant for an auto repair chain, and among your jobs is a requirement to set up a managerial accounting system for recording service revenues and related costs for the following:

You are provided with the following scenario:

A customer brings a car in to the repair shop in order to have some work done on the brakes as follows:

              Parts:

                   New brakes, pads etc  -                                                            $175.00

                            

               Labour:   

                   Mechanic’s time       $30.00 per hour            2.5 Hours

Included in the bill :

                   Shop charges (including $50.00 of supplies, $25 for super-

                                        vision, and Other $50.00         )                          $125.00

  

The company usually bills customers for full cost (including shop charges) plus 50% of   total cost and 13% HST [Note : HST is determined last].

•   

Required:  What could be considered the equivalent of direct materials and direct labour in this case? What would be the indirect materials and indirect labour? Calculate the amount of the bill for this work that would be given to the customer, and the amounts that would be entered in the company’s books. Do not make an entry.

Please show all calculations where necessary.

[15marks/8 minutes]

Answer 1