CIMA BA2 · Chapter 5 · Question 2 of 10
A job requires direct materials of $2,300 and 40 direct labour hours paid at $18 per hour. Production overheads are absorbed at $25 per direct labour hour. Administration overheads are added at 15% of total production cost. The company prices jobs to give a profit of 25% of the SELLING PRICE. What is the price of the job?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $6,164.00
Explanation
Production cost = $2,300 + (40 x $18 = $720) + (40 x $25 = $1,000) = $4,020. Administration = 15% x $4,020 = $603, so total cost = $4,623. A 25% margin on selling price means cost is 75% of price: price = $4,623 / 0.75 = $6,164.
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