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Each Job that the company completes requires material cost and direct labour cost in a ratio of 3:2 The company adds production overheads as 150% of direct labout cost. And administration overheads at 25% of total cost.
If the company wants to earn a markup of 25% and quotes $75000 for a particular job how much prodution overheads were charged to job?
Please Explain Sir.
There is no point in simply setting me test questions and expecting me to provide an answer.
You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about – then I will explain.
Have you watched my free lectures? Everything needed to be able to answer this question is explained in the lectures – they are a complete free course for Paper MA (F2) and cover everything needed to be able to pass the exam well.
I have watched all your free lectures but I still can’t find any solution for this question??
Well I don’t know where you found the question, but it is a bit ridiculous and hardly likely to be asked in the exam!
Best is to use some simply algebra.
Suppose the labour is X. Then the material is 3/2 = 1.5X, and the production overheads are 1.5X.
So the production cost is X + 1.5X + 1.5X = 4X.
So the admin overheads are 25% x 4X = X, and the total cost is 4X + X = 5X.The mark-up is 25% x 5X = 1.25X, giving a selling price of 6.25X.
So 6.25X = 75,000.
You should now be able to finish it yourself.
However, again, this is rather a ridiculous question. You should be using a Revision Kit from one of the ACCA approved publishers – they are full of exam standard questions (together with answers and explanations).
Thanks Sir
I am using the Exam kit from Kaplan and BBP
I am also practicing these questions for extra help
Thanks again.
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