A job used materials costing £3,200 and 40 direct labour hours at £15 per hour. Production overheads are absorbed at £8 per direct labour hour. The firm adds a 25% mark-up on total cost. What is the selling price of the job?
Answer and explanation
Correct answer: C. £5,150
- Step 1: Direct labour = 40 × £15 = £600; overheads absorbed = 40 × £8 = £320.
- Step 2: Total cost = £3,200 + £600 + £320 = £4,120.
- Step 3: Selling price = £4,120 × 1.25 = £5,150.
Answer
£5,150.
Why not the others: £4,120: This is the total cost without any mark-up. £5,493: This treats the 25% as a margin on selling price rather than a mark-up on cost. £4,750: This applies the mark-up before adding absorbed overheads.
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