You need a new roof on your old home. You employ William, the owner of a sole trader roofing business, to do the job. Although William's quote was the lowest you received, you picked him because he was highly recommended by several friends. You were sure the low quote did not suggest a low quality job. As it turned out, you were right.

William works alone so you chatted with him during lunch breaks to keep him company. During one of these chats, you were surprised to hear that his business was struggling financially, even though William had jobs booked 5 days a week for a year ahead, except for 4 weeks in summer when he wants to take a well-earned break. You thought about that low quote. Was he charging enough to cover all his costs?

The answer became clear when you received William's invoice. It included the correct list of materials, all charged at appropriate, going-rate-in-the-market prices (total $10,000). No obvious problems there. It was the other item on the invoice - labour - that suggested a problem. William had charged the correct amount of hours (total 80 hours = 8 hours per day, 5 days per week for 2 weeks) but at only $30 per hour! Clearly such a low rate could only be the direct labour rate. It seemed that no overheads had been incorporated into that rate, as would normally be the case for 'tradies'. You guess William's overheads would be around $50,000 per year.

You pay the invoice but then decide you want to help William out by explaining how he could apply a job costing approach in the future.

In your explanation to William, you will need to include the following: a) A brief description of job costing and its purpose. (1 mark) b) A definition of overheads along with 4 examples of overheads applicable to jobs for William's business.(1.5 marks) c) A numerical example applied to your roofing job that derives the full cost of your job. The example should correctly use the information above, provide any necessary formulas and justify any choices. The example should be well presented in a logical order that will be easy for William to follow and understand.