Question

Second Chance Welding rebuilds spot welders for manufacturers. The following budgeted cost data for 2020 is available for Second Chance.

Time Charges Material Loading Charges
Technicians' wages and benefits $266,000 -
Parts manager's salary and benefits - $40,000
Office employee's salary and benefits 45,600 10,500
Other overhead 22,800 28,000
Total budgeted costs $334,400 $78,500

The company desires a $35 profit margin per hour of labor and a 26.00% profit margin on parts. It has budgeted for 7,600 hours of repair time in the coming year, and estimates that the total invoice cost of parts and materials in 2020 will be $400,000.

Required:
a. Compute the rate charged per hour of labor.
b. Compute the material loading percentage.

Answer 1

a. Rate charged per hour of labor = [Total Budgeted Costs (Time Charges) / Number of Hours + Profit margin]

Rate charged per hour of labor = [$334,400/7,600 + $35]

Rate charged per hour of labor = $44 + $35

Rate charged per hour of labor = $79

b. Calculation of Material Loading percentage:

= [$40,000 + $10,500 + $28,000] / $400,000

= $78,500 / $400,000

= 0.19625

= 19.63%