What should be the price charged to the customer for repairs to the dishwasher?
Understand the Problem
The question is asking for the calculation of the total price to charge a customer for repairing a dishwasher, taking into account the direct materials, direct labour costs, overheads, and a profit mark-up based on the costs involved.
Answer
The price charged to the customer for repairs to the dishwasher is approximately £51963.18.
Answer for screen readers
The price charged to the customer for repairs to the dishwasher is approximately £51963.18.
Steps to Solve
- Calculate Total Direct Costs
Add the direct materials, direct labour, and the cost of the replacement parts.
Direct materials: £6000
Direct labour: £31000
Replacement parts: £88
Total Direct Costs = Direct Materials + Direct Labour + Replacement Parts
Total Direct Costs = £6000 + £31000 + £88 = £37088
- Calculate Overhead Rate per Labour Hour
Determine the overhead rate based on the direct labour hours worked.
Total overheads: £15000
Total direct labour hours: 2100
Overhead Rate per Labour Hour = Total Overheads / Total Labour Hours
Overhead Rate per Labour Hour = £15000 / 2100 ≈ £7.14 per hour
- Calculate Total Overhead Costs for the Dish Washer Repair
Multiply the overhead rate by the number of hours worked on the dishwasher repair.
Number of hours for repair: 4
Total Overhead Costs = Overhead Rate per Labour Hour × Hours Worked
Total Overhead Costs = £7.14 × 4 ≈ £28.56
- Calculate Total Cost of Repair
Add the total direct costs and total overhead costs.
Total Cost of Repair = Total Direct Costs + Total Overhead Costs
Total Cost of Repair = £37088 + £28.56 ≈ £37116.56
- Calculate Selling Price with Profit Mark-Up
Add a 40% profit mark-up to the total cost.
Profit Mark-Up = 40% of Total Cost of Repair
Profit Mark-Up = 0.40 × £37116.56 ≈ £14846.62
Selling Price = Total Cost of Repair + Profit Mark-Up
Selling Price = £37116.56 + £14846.62 ≈ £51963.18
Final selling price rounded to the nearest penny: £51963.18.
The price charged to the customer for repairs to the dishwasher is approximately £51963.18.
More Information
The calculation effectively incorporates all costs involved in the job, including direct materials, labor, overheads, and profit margins. Leveraging hourly overhead costs ensures that all expenses are covered while allowing for a substantial profit.
Tips
- Not including all costs: Ensure all direct material and labor costs are accounted for.
- Miscalculating the overhead rate: Double-check the division of total overheads by total labour hours.
- Incorrectly applying the profit markup: Remember to apply it on the total cost, not just the direct costs.
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