Question

Omega, Inc., projects the following costs for its Maintenance Department for the coming year.

Fixed costs (salaries, machine oil): $100,000 per year
Variable costs (cleaning supplies): $2.50 per maintenance hour
If the total estimated usage of the Maintenance Department is 20,000 hours, calculate a single charging rate for the Maintenance Department. (Round your answer to two decimal places.)
a.$7.50 per hour
b.$1.50 per hour
c.$5.25 per hour
d.$3.00 per hour

Answer 1

The single charging rate for the Maintenance Department is calculated by summing the fixed and variable costs, then dividing by the estimated hours, resulting in a rate of $7.50 per hour.

Step-by-step explanation:

To calculate a single charging rate for the Maintenance Department at Omega, Inc., we must add the fixed costs to the total variable costs and then divide by the total estimated maintenance hours. The fixed costs are given as $100,000 per year. The variable costs are $2.50 per maintenance hour. If the estimated usage is 20,000 hours, the variable costs would be 20,000 hours multiplied by $2.50, which is $50,000.

The total costs are then the sum of fixed costs and variable costs: $100,000 + $50,000 = $150,000 for 20,000 hours of maintenance work. To find the charging rate, we divide the total costs by the total estimated hours: $150,000 ÷ 20,000 hours = $7.50 per hour.

Therefore, the correct option is a. $7.50 per hour.