ICAEW BIP · Chapter 4 · Question 11 of 11
A product requires £22 of direct materials and 3 direct labour hours paid at £14 per hour. Production overheads are absorbed at £18 per direct labour hour. Administration overheads are added at 10% of total production cost. The selling price is set to give a profit margin of 20% of the selling price. What is the selling price (to the nearest penny)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £162.25
Explanation
Production cost = £22 + (3 x £14) + (3 x £18) = £22 + £42 + £54 = £118.00. Total cost = £118.00 x 1.10 = £129.80. Profit is 20% of price, so cost is 80% of price. Price = £129.80 / 0.80 = £162.25.
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