The following is known about the small construction company engaged in custom production:working hours available 3600 h/year fixed costs are estimated to be €30,000.00/year according to experience, variable overhead costs are 8% of the value of a working hour the company’s management sets the company’s profit target at €50,000.00/yearThe company receives a request for tender for a construction contract and determines the following information:Construction material for the contract €10,000.00the cost of a working hour is €27.00/hthe contract requires working hours of 100 htotal work trips for the contract between the place of business and the construction site 200 kmthe mileage allowance charged to the customer is €0.70/kmthe rest of the 3,600 h annual capacity hours are used for other contracts to be solda) Calculate the company’s total margin and hourly marginTotal marginHourly rateb) Calculate the total price offer with value added tax for the construction contract based on the hourly margin principle. (24%tax) Share on Facebook Tweet Follow us Sample Answer Financial Analysis for the Small Construction Company Given Information: – Working hours available: 3600 h/year – Fixed costs: €30,000.00/year – Variable overhead costs: 8% of the value of a working hour – Profit target: €50,000.00/year – Construction material cost: €10,000.00 – Cost of a working hour: €27.00/h – Working hours for the contract: 100 h – Total work trips: 200 km – Mileage allowance: €0.70/km – Remaining annual capacity hours: 3600 – 100 = 3500 h Calculations: a) Total Margin and Hourly Margin: 1. Total Margin: – Total Costs = Fixed Costs + Variable Overhead Costs + (Cost of Working Hours * Working Hours) – Variable Overhead Costs = 8% of €27.00 = €2.16/h – Total Costs = €30,000.00 + (0.08 * €27.00 * 3600) + (€27.00 * 100) = €30,000.00 + €7776.00 + €2700.00 = €39,476.00 – Total Margin = Profit Target + Construction Material Cost – Total Costs – Total Margin = €50,000.00 + €10,000.00 – €39,476.00 = €20,524.00 2. Hourly Margin: – Hourly Margin = Total Margin / Working Hours – Hourly Margin = €20,524.00 / 3600 h ≈ €5.70/h b) Total Price Offer with VAT: 1. Total Price Offer without VAT: – Total Price Offer without VAT = Total Costs + Total Margin – Total Price Offer without VAT = €39,476.00 + €20,524.00 = €60,000.00 2. VAT Calculation (24%): – VAT Amount = 24% of Total Price Offer without VAT – VAT Amount = 0.24 * €60,000.00 = €14,400.00 3. Total Price Offer with VAT: – Total Price Offer with VAT = Total Price Offer without VAT + VAT Amount – Total Price Offer with VAT = €60,000.00 + €14,400.00 = €74,400.00 Results: a) – Total Margin: €20,524.00 – Hourly Margin: €5.70/h b) – Total Price Offer with VAT: €74,400.00 Conclusion: The small construction company’s total margin is calculated to be €20,524.00, with an hourly margin of approximately €5.70/hour. The total price offer for the construction contract, including VAT at 24%, amounts to €74,400.00 based on the hourly margin principle. These calculations provide valuable insights into the company’s financial performance and pricing strategy for the construction contract. This question has been answered. Get Answer
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