Reference no: EM133069933

Question - Tropico Services is a landscaping firm located in Nadi. The following costs were incurred in the firm's contract to beautify the local hotels:

Direct material $4,800

Professional labour $13,000

The firm's budget for the year included the following estimates:

Budgeted overhead $900,000

Budgeted professional labour $600,000

1. Determine the annual budgeted overhead rate that will be used to apply overhead to contracts, based on the professional labour cost.

2. Calculate the total cost of the firm's contract to beautify the hotels. Materials are charged directly to each contract.

3. Use the total cost to calculate a service fee, assuming that the company adds a 42 per cent profit margin to total cost.

4. Calculate the fee charged to beautify the hotels, assuming that the firm uses a chargeout rate of $360 per professional labour hour (which includes a profit margin of 42 per cent) and 110 hours are worked on this contract. Materials are charged to the client at cost.

5. Explain the key differences between this approach to estimating service fees and the method described in (3.) above.

6. Which method would you recommend for estimating client fees? Explain your answer.