Question

Magic Maids is one of Dallas's largest commercial office cleaning services. The company has set a price of $120 for cleaning the "standard" business office. Magic Maids derived this price as follows: Cleaning Materials $12.501 Labor (3 hours @ $15 per hour) 45.002 Variable overhead cost 7.503 Fixed overhead cost (3 hours @ #5 per hour) 15.004 Total cost $80.00 Profit markup (50%) 40.00 Price per "standard" business office $120.00

1. Magic Maid provides all of the cleaning supplies.

2. All Magic Maids employees are "salaried" and receive fixed montly salary. Magic maids computes the hourly rate of $15 as the total monthly salary of all cleaning employees divided by the total number of cleaning hours available in the month.

3. Variable overhead cost consists of costs such as scrub brushes and vacuum bags that depend on hte number of offices cleaned.

4. Magic Maids arrived at this estimate by dividing the total fixed monthly overhead of $150,000 (which is comprised mainly of office rent and adminstrative salaries) by the total number of available cleaning hours per month. A local conglomerate based in Dallas, who is not a current customer of Magic Maids, approaches Magic Maids about the possibility of cleaning 150 "standard" business offices next week. The conglomerate needs the work done on a rush basis due to an unexpected visit by a dignitary. Magic Maids has all of the requisite supplies in stock. It believes that it could complete 60% of the job during the normal business hours (right now, there is surplus capacity of cleaning laborers forcing many cleaning employees idle for some time). To complete the remaining 40%, however, some employees will have to work overtime. As per the policy of Magic Maids, the overtime work will be compensated @ an hourly rate of $22.50 (Compensating overtime work @1.5 X regular wage rate is the most common practice).

What is the minimum price that Magic Maid can accept for the job?

Answer 1