ACCA MA · Chapter 8 · Question 2 of 12
A job requires direct materials of $1,200 and 40 hours of direct labour at $15 per hour. Production overheads are absorbed at $20 per direct labour hour. Administration overheads are added at 20% of total production cost. The selling price is set to give a profit margin of 25% of the selling price. What is the selling price of the job?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $4,160
Explanation
Production cost = 1,200 + (40 x 15) + (40 x 20) = 1,200 + 600 + 800 = $2,600. Administration = 20% x 2,600 = $520, so total cost = $3,120. With a 25% margin on selling price, cost is 75% of price: 3,120 / 0.75 = $4,160. A 25% mark-up on cost would give $3,900.
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