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Dear sir,
The question is :
A business operates a job costing system and has the aim of making a net profit of 30% of sales.
The cost estimates for one particular job are as follows:
Direct materials: 80kg at $5 per kg
Direct labor: 40 hours at $6 per hour
The total overheads are budgeted at $120,000 and are absorbed on the basis of direct labour hours. The budgeted labour hours are 50,000.
What price should be quoted for this job ( to the nearest $)?You have not said which part of the question is causing a problem for you!
Materials and labour costs are easy to calculate.
As far as the overheads are concerned, they will be charged at 120,000/50,000 = $2.40 per hour. So the overhead part of the cost is 40 hours at 2.40 = $96Then you have to add profit to the total cost. Since the profit is to be 30% of sales, it means that for every $100 sales, the profit would be 30 and therefore the cost would be $70. Or, to put it the other way round, for every $70 cost the profit will be $30.
So when you have calculated the total cost, the profit to add will be 30/70 x that cost.
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