Why foster appliance repair can do to maximaize profitability?

2. Should Carrigan go along with the general managers request to reduce the direct la bour-bours in the predetermined overhead rate computation to 105000 direct labour hours? E 5-32 Single versas Multiple Overhead Application Rates ILO3, LOSI Foster Appliance Repait has developed a repatation over many years of providing high-qual ity reliable repair services at a Eair price. The company has grown from a two-person opera tion (run by Victor Foster and his wife Sally Jones) to a mach l Foster and Jones as well as four skilled repair personnel and two service technicians. Joee manages the front office and prepares all accounting related records for the co Recently, Jones has noticed a decline in profits generated by the repair business. Foster hud also noticed some decline in the number of repairs completed over the past believes this reduction may be due to increased competition from a new area Since pricing is based to a large degree on the cost of repalrs. Foster asked jones to spend some time analyzing how repair costs were charged to jobs. to better understand the prablem. He was quick to remind Jones that he was committed to keeping all personnel u fixed salaries since be believes this allows him to keep good employees and encoura loyalty to the company larger company employing repair shop i jones collected the following information about the costing Direct materials used in repairs are charged directly to the job The four repair personnel are paild a fixed salary of $50000 per year, and the two tech cians are pald a fixed salary of $38.000 per year Jones estimates that each of the six repair ersonnel works 1350 bours per year on customer jobs repair van maintenance repair van depreciation) total $178450, including Other budgeted indirect support costs for the year (eg. rent insurance, utilities, supplie Jones's salaries The price for each job is calculated on a cost plus basis. Customers pay the total coet sa complete the job plus a markup of 10% The total cost for each job is calculated as follows: total direct material cost plus the shop rate" number of repair hours to complete the job The shop rate is applied to all types d repair jobs. The shop rate is calculated as the sum of the repair personnel salarles plus badgeted indirect support costs for the year divided by the estimated total hours to be rked on customer jobs for the year Jones noted that about 65% of total indirect costs related to complex repairs over the last couple of years, while the other 35% of total indirect costs related to simpler repairs Even o about half of the total time worked on custorner jobs by repair personnel and techni cians was related to complex repairs, while the other half was related to simple repair While Jones believed this was important information she realized it was not taken into account when calculating the overall sbop rate for the year Required Calculate the shop rate for the year based on the above information gathered by Joes 2. Use the information gathered by kones about the proportion of complex and simple re pairs each year to calculate different shop rates that could be applied to complex and simple repair work 3. Consider job 1246 completed by Faster Appliance Repair last month. The job cost sheet indicates S1 15 cost of direct materials plus 6 bours of labour time x the shop rate Calculate the total price charged to the customer, assuming a 10% markup b By doing a little more digging Jnes was able to determine that 2 of the 6 hours spent on Job 1246 were related to complex repairs, while 4 of the 6 hours spent on the job were related to simple repairs. Use this information and the two shop rates calculatel in (2) above to estimate the price that would have been charged for Job 1246 unde this new system