Several days ago you took your TV set into a shop to have some repair work done. When you later picked up the set, the bill showed a $75 charge for labor. This charge represented two hours of service time-%30 for the first hour and $45 for the second.

When questioned about the difference in hourly rates, the shop manager explained that work on your set was started at 4 o’clock in the afternoon. By the time work was completed two hours later at 6 o’clock, an hour of overtime had been put in by the repair technician. The second hour therefore contained a charge for an “overtime premium,” since the company had to pay the repaid technician time and a half for any work in excess of eight hours per day. The shop manager further explained that the shop was working overtime to “catch up a little” on its backlog of repairs, but it still needed to maintain a “decent” profit margin on the technicians’ time.

Required:

1. Do you with the shop’s computation of the service charge on your job?

2. Assume that the shop pays its technicians $14 per hour for the first eight hours worked in a day and $21 per hour for any additional time worked in a day. Prepare computations to show how the cost of the repair technician’s time for the day (nine hours) should be allocated between direct labor cost and general overhead cost on the shop’s books.

3. Under what circumstances might the shop be justified in charging an overtime premium for repair work on your set?