Reference no: EM133049386

Discussions

DQ 1. Identify the key features of:
a) Professional service firms
b) Service shops
c) Mass service entities
DQ 2. Use the search term Service Costing to find websites of industries or organisations that estimate service costs. Identify possible reasons for these industries or organisations estimating service costs.

Exercises
1. Foodworks is a major independent supermarket located in Geelong. Classify the costs listed below using the value chain classifications:
a) Purchasing
b) Production/sales
c) Marketing
d) Distribution
e) Customer support
Costs:
1. Wages paid to the purchasing manager.
2. Wages paid to the staff who operate the service desk. The service desk assists customers to locate items in the store and resolves customer complaints.
3. Electricity: the fridges and freezers that store cold goods in the shop account for most of the electricity consumed.
4. Cost of plastic bags supplied to customers with sales.
5. Wages paid to check-out assistants.
6. Cost of advertising in the local paper, Geelong News.

Problems

1. Eye for Detail is an interior decorating firm located in Sydney. The following costs were incurred in the firm's contract to redecorate the local council offices:

Direct material                                            $  5 600

Professional labour                                       12 000

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

Budgeted overhead                                                                   $800 000

Budgeted professional labour                      500 000

Required:
a) Calculate the total cost of the firm's contract to redecorate the council offices. Overhead is applied to contracts using a predetermined overhead rate, calculated annually, based on the professional labour cost. Materials are charged directly tot each contract.

b) Use the total cost to calculate a service fee, assuming that the company adds a 40 percent profit margin to total cost.

c) Calculate the fee charged to redecorate the council offices, assuming that the firm uses a chargeout rate of $360 per professional labour hour (which includes a profit margin of 40 percent) and 120 hours are worked on this contract. Materials are charged to the client at cost.

d) Explain the key differences between the methods used in b) and c) for estimating client fees.

e) Which method would you recommend for estimating client fees.