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Hi
Please help me to solve this problem.
A business operates a job costing system and has the aim of making a net profit of 30% on sales. The cost estimates for one particular job are as follows:
Direct Material 80kg at $ 5 per kg
Direct Labour 40 hours at $ 6 per hourThe 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?
Although I will answer this, it is better if you say what your problem is (and I will try and help) rather than just ask for the answer to a question.
The costs are as follow:
Materials: 80 x $5 = $400; Labour 40 x $6 = $240
Overheads are absorbed at the rate of 120,000 / 50,000 = $2.40 per labour hour.
So the overheads for the job are 40 hours x $2.40 = $96.So the total cost is 400 + 240 + 96 = $736.
The aim is a profit of 30% of sales, and so the cost must be 70% x sales.
If 70% x sales = 736, then sales = 736 / 70% = $1051.43
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