Question

You are the manager of the maintenance department of a large factory. You have been instructed to calculate an hourly rate that will cover all of your department’s costs for your maintenance staff, which will be (cross-) charged to other departments.

Use the following information:
(a) The maintenance department occupies 300 sq. metres in the 20 000 sq. metre factory for which the company pays a monthly rental of R600 000.
(b) Your salary is R500 000 per annum.
(c) The original cost of the equipment your department uses was R150 000 and it is being depreciated on a straight-line basis over five years.
(d) The average hourly rate paid to your staff is R35 per hour. This excludes the R4 500 per month paid to your administrative assistant.
(e) The company contributes R450 per month per person employed in the department for medical aid, UIF, Insurance, etc.
(f) Ignore any other costs such as Workers Accident Compensation, company contributions to pension funds, etc.
(g) There are 10 maintenance staff in your department.
(h) Maintenance staff is paid on a 40-hour week.

Show all workings and make any assumptions you feel necessary to calculate the cross-charge rate.

All assumptions must however be explained in your workings.

Answer 1

TOTAL COST ATTRIBUTABLE TO MAINTENANCE DEPARTMENT
PARTICULARS	FORMULA	Column1
RENTAL	:600000*12/20000*300	$            108,000.00
MANAGER SALARY	:500000	$            500,000.00
DEPRECIATION COST	:150000/5	$              30,000.00
STAFF SALARY (PER ANNUM)	:35*40*52*10	$            728,000.00
ADMINISTRATIVE ASSISTANT SALARY	:4500*12	$              54,000.00
EMPLOYER CONTRIBUTION COST	:450*12*10	$              54,000.00
	TOTAL	$        1,474,000.00
TOTAL NO. OF HOURS WORKED BY DEPARTMENT	:40*52*10	20800 HOURS
CROSS CHARGE RATE	TOTAL COST
	TOTAL NO. OF HOURS
=	1474000
	20800
=	$70.87 PER HOUR