Service Costing

Tropico Services is a landscaping firm located in Nadi. The following costs were incurred in the firms contract to beautify the local hotels: Direct material $4 800 Professional labour $13 000 The firms budget for the year included the following estimates: Budgeted overhead $900 000 Budgeted professional labour $600 000 REQUIRED: Show ALL workings

Calculate the fee charged to beautify the hotels, assuming that the firm uses a chargeout rate of $360 per professional labour hour (which includes a profit margin of 42 per cent) and 110 hours are worked on this contract. Materials are charged to the client at cost. Explain the key differences between this approach to estimating service fees and the method described in (3.) above. Which method would you recommend for estimating client fees? Explain your answer.