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 Office and Computer Expenses (A) $625,000 Desired Profit (B) $100,000 Total Contribution Required (C = A+B) $725,000 # Hours (D) 20000 Contribution per hour (E = C/D) $36.25 Variable Cost (F) $30.00 Per Hour Rate (G = E+F) $66.25 b Office and Computer Expenses (A) $625,000 Desired Profit (B) $150,000 Total Contribution Required (C = A+B) $775,000 # Hours (D) 20000 Contribution per hour (E = C/D) $38.75 Variable Cost (F) $30.00 Per Hour Rate (G = E+F) $68.75 Mark Up on Variable Cost (G/F) 229% c (i) Office and Computer Expenses (A) $625,000 Desired Profit (B) $0 Total Contribution Required (C = A+B) $625,000 # Hours (D) 20000 Contribution per hour (E = C/D) $31.25 Variable Cost (F) $30.00 Per Hour Rate (G = E+F) $61.25 Mark Up on Variable Cost to cover unassigned cost (G/F) 204% c (ii) Office and Computer Expenses (A) $0 Desired Profit (B) $60,000 Total Contribution Required (C = A+B) $60,000 # Hours (D) 20000 Contribution per hour (E = C/D) $3.00 Variable Cost (F) $30.00 Per Hour Rate (G = E+F) $33.00 Mark Up on Variable Cost for desired profit (G/F) 110%

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