© 2010 The McGraw-Hill Companies, Inc. Time and Material Pricing Model By Teerachai Arunruangsirilert.

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© 2010 The McGraw-Hill Companies, Inc. Time and Material Pricing Model By Teerachai Arunruangsirilert

McGraw-Hill/Irwin Slide 2 Time and Material Pricing Definition It is a pricing model for a service business charging to a customer by using 2 components including services time and material used. Normally, the price charged is market based. However, some companies apply this model by using the cost-plus approach.

McGraw-Hill/Irwin Slide 3 Time Component Generally, it is a rate per labor hour. The rate consists of 3 elements: 1.The direct cost of staff including salary and fringe benefits 2.Allowance for other expenses of the firm such as selling & Administration expenses 3.Desired profit per hour of staff time.

McGraw-Hill/Irwin Slide 4 Time Component Some firms use the same hourly rate regardless of actual works on job. The rate may be the same or vary by employee, such as consulting firm.

McGraw-Hill/Irwin Slide 5 Material Component A material loading charge to the invoice price of any material used on the work. It is set to cover the material management cost, e.g. ordering, handling, carrying materials, plus a profit margin on them.

McGraw-Hill/Irwin Slide 6 Example of Time and Material Pricing Best Auto Care (BAC) use time and material pricing for all repair services. The budget cost of the incoming year is showed below. ServiceParts Mechanics' wages300,000 Service manager - Salary40,000 Parts Manager - Salary35,000 Clerical – Salary20,00015,000 Others10,000 Invoice cost of parts used300,000 Suppose, BAC anticipates to bill customers for 20,000 hours of service time. A profit of $5 per hour of service time. For parts, it will charge at 15%

McGraw-Hill/Irwin Slide 7 Example of Time and Material Pricing Time componentParts TotalPer hourTotal% Mechanics' wages300,000 Service manager - Salary40,000 Total340,000$17 Parts Manager - Salary35,000 Clerical – Salary20,00015,000 Others10,000 30, ,00020% Desired profit100,000545,00015% Total amount to be billed470,000$ ,00035%

McGraw-Hill/Irwin Slide 8 Example of Time and Material Pricing Pricing Charge Labor Charge (23.5 x 5)117.5 Parts used: Invoice Cost of Material used$200 Loading Charge: 35% x $ Total price of the job$387.5 Charge at $23.5 per hour and material loading charge is 35% of invoice cost of materials. If a job requires 5 hours of services and $200 materials used, its’ price would be: