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The production cost of Job J6 was $12,600. Administration costs are charged to jobs at 30% of production cost. The amount charged to the customer is calculated to provide a GROSS PROFIT MARGIN of 40%.
What is the net profit on Job J6?
$1,260
$4,620
$10,920
$15,120In future please do not simply type out a full question and expect to be provided with a full 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 and then I will explain.
The amount charged to the customer must be 12,600 / 60% = 21,000 and therefore the gross profit is 40% x 21,000 = 8,400 (or 21,000 – 12,600 = 8,400).
So the net profit is 8,400 – (30% x 12,600 ) = 4,620.
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