Vern Schlichter, owner of The Import Shop, a garage specializing in foreign auto

Question

Vern Schlichter, owner of The Import Shop, a garage specializing in foreign auto
repairs wants to make sure that the hourly price he charges for his company's repair
service will cover his costs and generate the desired profit. Using his most recent
income statement, Vern estimates that he and his employees spent 8,465 hours
repairing cars at a total cost (excluding parts) of $281,461. If Vern's target net profit
margin is 20 percent, what price per hour should he set for labor (excluding parts)?

Explanation / Answer

Total cost of repairing cars = $281,461 Time spent by employees = 8,465 hours Target Net Profit Margin = 20% Price per hour = [Total cost of repairing cars (excluding parts) / Time spent by employees] Price per hour = [$281,461 / 8,465 hours] Price per hour = $33.25 per hour Vern Schlichter should fix labor cost of $33.25 per hour

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