Compu Services provides computerized inventory consulting. The office and comput

Question

Compu Services provides computerized inventory consulting. The office and computer expenses are $625,000 annually and are not assigned to specific jobs. The consulting hours available for the year total 20,000, and the average consulting hour has $30 of variable costs.

(a) If the company desires a profit of $100,000, what should it charge per hour? Round to the nearest cent.

(b) What is the markup on variable costs if the desired profit is $150,000? Round to the nearest whole percent.

(c) If the desired profit is $60,000, what is the markup on variable costs to cover (1) unassigned costs and (2) desired profit? Round to the nearest whole percent.

Explanation / Answer

a) Total cost = Fixed Cost + Variable Cost

Total Revenues = Total cost + Profit

For a desired profit level of $ 100,000, Total Revenues = $ 625,000 + $ ( 20,000 x 30) + $ 100,000 = $ 1,325,000

Revenue per consulting hour = $ 1,325,000 / 20,000 = $ 66.25

b) If the desired profit is $ 150,000, Total Revenues = $ 625,000 + $ 600,000 + $ 150,000 = $ 1,375,000

Markup on variable costs = $ ( 1,375,000 - 600,000 ) / $ 600,000 = 129%

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