Southern Tier Heating, Inc. installs heating systems in new homes built in the southern tier counties of New York state. Jobs are priced using the time and materials method. The president of Southern Tier 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 ................................................................................................................. $60,000
Labor hours ......................................................................................................................... 400
The following predictions pertain to the company's operations for the next year.
Labor rate, including fringe benefits .............................................................. $16.00 per hour
Annual labor hours .............................................................................................. 12,000 hours
Annual overhead costs:
Material handling and storage ..................................................................................... $25,000
Other overhead costs ................................................................................................. $108,000
Annual cost of materials used .................................................................................... $250,000
Required:
Southern Tier Heating adds a markup of $4.00 per hour on its time charges, but there is no markup on material costs.
1. Develop formulas for the company's (a) time charges and (b) material charges.
2. Compute the price for the job described above.
3. What would be the price of the job if Southern Tier Heating also added a markup of 10 percent on all material charges (including material handling and storage costs)?