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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

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 1. Determine the annual budgeted overhead rate that will be used to apply overhead to contracts, based on the professional labour cost. 2 marks 2. Calculate the total cost of the firms contract to beautify the hotels. Materials are charged directly to each contract. 4 marks 3. Use the total cost to calculate a service fee, assuming that the company adds a 42 per cent profit margin to total cost. 3 marks 4. 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. 3 marks 5. Explain the key differences between this approach to estimating service fees and the method described in (3.) above. 4 marks. 6. Which method would you recommend for estimating client fees? Explain your answer. 4 marks

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