Question

Suburban Heating, Inc., installs heating systems in new homes built in suburban Philadelphia. Jobs are priced using the time and materials method. The following predictions pertain to the company’s operations for the next year.

    
  Labor rate, including fringe benefits $ 20.00 per hour
  Annual labor hours 16,000 hours
  Annual overhead costs:
      Material handling and storage $ 67,600
      Other overhead costs $ 152,000
  Annual cost of materials used $ 338,000

    The president of Suburban Heating, B. T. Ewing, is pricing a job involving the heating systems for six houses to be built by a local developer. He has made the following estimates.

    
  Material cost $ 86,000
  Labor hours 500

Required:

Suburban Heating adds a markup of $5.00 per hour on its time charges, but there is no markup on material costs.

1-a.

Calculate the total time charge. (Round your answer to 2 decimal places.)

         

1-b.

Calculate the material charge percentage.

        

  

2.

Compute the price for the job. (Do not round intermediate calculations.)

       

3.

What would be the price of the job if Suburban Heating also added a markup of 15 percent on all material charges (including material handling and storage costs)? (Do not round intermediate calculations.)

       

Answer 1

1a). Calculation of total time charge:
Labur rate + Other overhead cost + Markup
= $20 + (152000 / 16000) + $5 = $34.5 per hour

1b). Material charge percentage = Material handling and storage / Annual material cost
= 67600 / 338000 *100 = 20%

2). Price for the job:
Total Time charges = 34.5 * 500 hrs = $17250
Total Material charges = 86000 + 20%= $103200
Total price for the job = $120450

3). Price of job if there is 15% markup on all material charges:
Total Time charges = $17250
Total Material charges = $103200 + 15% = $118680
Price of the job = $17250 + $118680 = $135930