Cost Accounting · Job Costing

Pricing a Job: Profit on Cost vs Profit on Sales

Updated 10 October 2026 · Fact-checked

Pricing a job means finding its total cost (materials, labour, direct expenses, overheads), adding the required profit, and quoting the result. If profit is a percentage of cost, price = cost × (100 + p) ÷ 100. If it is a percentage of sales, price = cost × 100 ÷ (100 − p).

Understand Pricing a Job: Estimates, Profit and Quotations

A job is a single order made to a customer's specification. Before you start, the customer wants a price. The firm prepares an estimate of cost and adds profit to get the quotation. After the job is done, actual cost is compared with the estimate.

The estimate follows the same layout as a job cost sheet. First come prime cost items: direct materials, direct labour and direct expenses. Then factory overheads are added, usually at a rate per labour hour, machine hour or percentage of direct wages. This gives factory cost. Administration, selling and distribution overheads are added to reach the total cost of the job.

Profit is then added in one of two ways. Profit on cost means the percentage is applied to total cost. Profit on sales means the percentage is applied to the selling price. The two are not the same. 20% on cost is only 16⅔% on sales. A margin of 20% on sales is 25% on cost.

The key idea for profit on sales: the selling price is 100, profit is p, so cost is (100 − p). You therefore divide cost by (100 − p) and multiply by 100. Do not multiply cost by p%, because that would give p% of cost, not of sales.

Exam questions often add twists: materials with normal wastage, labour at different rates, overheads on different bases, a rate for the job's share of administration cost, or a discount allowed to the customer. Handle each in the cost sheet before you touch profit.

Key rules to remember

Total cost of the job: Prime cost + Factory overheads + Administration overheads + Selling and distribution overheads; Prime cost = direct materials + direct labour + direct expenses.
Overhead absorbed: Overhead = Absorption rate × Base units of the job; Base may be direct labour hours, machine hours or % of direct wages.
Price with profit on cost: Price = Cost × (100 + p) ÷ 100; p is profit as a percentage of cost.
Price with profit on sales: Price = Cost × 100 ÷ (100 − p); p is profit as a percentage of selling price. Profit = Price − Cost.
Converting cost basis to sales basis: Profit % on sales = p ÷ (100 + p) × 100, where p is profit % on cost; Example: 25% on cost = 20% on sales.
Converting sales basis to cost basis: Profit % on cost = s ÷ (100 − s) × 100, where s is profit % on sales; Example: 20% on sales = 25% on cost.

How to solve Pricing a Job: Estimates, Profit and Quotations questions

Use this order for any quotation or job pricing question. Show each head separately so you earn step marks.

1Read the question and note the profit basis: on cost or on sales. Underline it.
2List direct materials with quantity and rate. Adjust for wastage or scrap if given.
3Compute direct labour as hours × rate for each grade, and add direct expenses.
4Add prime cost, then absorb factory overheads using the rate and base given.
5Add administration and selling overheads on the stated basis to get total cost.
6Add profit: if on cost, multiply cost by the percentage; if on sales, divide cost by (100 − p) and multiply by 100.
7Show the quotation price clearly, with profit shown as a separate line.
8If asked, state the profit percentage on the other basis or the effect of a discount.

Quickest way: Cost-to-price multiplier

When to use it: Use when total cost is already known or easy to total, and only the profit step is left.

For profit on cost, use multiplier (100 + p) ÷ 100. For 25%, multiply by 1.25.
For profit on sales, use multiplier 100 ÷ (100 − p). For 20%, multiply by 1.25, since 100 ÷ 80 = 1.25.
Write the price first, then profit = price − cost. Do not compute profit separately.
Check: profit ÷ price should equal p if basis is sales; profit ÷ cost should equal p if basis is cost.

Common mistakes in Pricing a Job: Estimates, Profit and Quotations

Taking profit on sales as a percentage of cost.
Students multiply cost by (100 + p) out of habit.
Fix: If the question says 'on sales' or 'on selling price', divide cost by (100 − p) and multiply by 100.
Confusing margin with mark-up.
The words margin and mark-up are used loosely.
Fix: Treat margin as a percentage of sales and mark-up as a percentage of cost unless the question says otherwise. State your assumption.
Adding profit before including all overheads.
Students stop at prime cost or factory cost when profit is given.
Fix: Profit is added only on total cost (or total cost of sales) unless the question says profit is on prime cost or factory cost.
Ignoring wastage in materials.
Students use the finished quantity instead of the quantity to be issued.
Fix: Compute the gross quantity needed after normal wastage, and cost the full quantity issued, adjusted for any scrap value if stated.
Using the wrong overhead base.
Several bases are given, and the student picks one for all overheads.
Fix: Match each overhead with its own rate and base, as in the question. Write the rate and its working.
Not showing the cost sheet layout.
Students go straight to arithmetic in running text.
Fix: Use the standard format with headings: materials, labour, direct expenses, prime cost, overheads, total cost, profit, price.

Worked examples

Example 1

A job requires 200 kg of material A at ₹150 per kg and 100 kg of material B at ₹80 per kg. Direct labour is 120 hours at ₹90 per hour. Factory overhead is absorbed at ₹50 per labour hour. Administration overhead is 10% of factory cost. Profit is 20% on selling price. Find the quotation price.

Show the solution

Material A = 200 × ₹150 = ₹30,000.
Material B = 100 × ₹80 = ₹8,000. Total materials = ₹38,000.
Direct labour = 120 × ₹90 = ₹10,800.
Prime cost = ₹38,000 + ₹10,800 = ₹48,800.
Factory overhead = 120 × ₹50 = ₹6,000.
Factory cost = ₹48,800 + ₹6,000 = ₹54,800.
Administration overhead = 10% × ₹54,800 = ₹5,480.
Total cost = ₹54,800 + ₹5,480 = ₹60,280.
Profit is on sales, so price = ₹60,280 × 100 ÷ 80 = ₹75,350.
Profit = ₹75,350 − ₹60,280 = ₹15,070, which is 20% of ₹75,350.

Answer: Quotation price = ₹75,350 (total cost ₹60,280; profit ₹15,070).

Example 2

Sharma Fabricators estimates for a job: direct materials ₹40,000, direct wages ₹25,000 (400 hours). Factory overhead is 80% of direct wages. Office overhead is 15% of factory cost. The firm wants a profit of 25% on cost. The customer asks for a 5% discount on the quoted price. (a) Find the quotation price. (b) Find the profit if the discount is given, and the profit as a percentage of cost.

Show the solution

Prime cost = ₹40,000 + ₹25,000 = ₹65,000.
Factory overhead = 80% × ₹25,000 = ₹20,000.
Factory cost = ₹65,000 + ₹20,000 = ₹85,000.
Office overhead = 15% × ₹85,000 = ₹12,750.
Total cost = ₹85,000 + ₹12,750 = ₹97,750.
Profit at 25% on cost = 25% × ₹97,750 = ₹24,437.50.
Quotation price = ₹97,750 + ₹24,437.50 = ₹1,22,187.50.
Discount 5% of ₹1,22,187.50 = ₹6,109.375.
Net price after discount = ₹1,22,187.50 − ₹6,109.375 = ₹1,16,078.125, about ₹1,16,078.13.
Profit after discount = ₹1,16,078.125 − ₹97,750 = ₹18,328.125, about ₹18,328.13.
Profit % on cost = 18,328.125 ÷ 97,750 × 100 = 18.75%.

Answer: (a) Quotation price = ₹1,22,187.50. (b) After a 5% discount, the net price is about ₹1,16,078.13 and profit is about ₹18,328.13, which is 18.75% on cost.

Exam tips

Circle the words 'on cost' or 'on sales' before you start. Marks are lost here more than anywhere else.
Use a clean vertical cost sheet. Even if the final price is wrong, each correct head earns step marks.
Show the overhead rate and its working in one line. Examiners check rate × base.
In MCQs, test the options quickly: profit on sales of 20% means price is 1.25 times cost, and profit on cost of 20% means 1.20 times cost.
When a discount or tax is added, apply it on the quoted price, not on cost, and state this in your answer.

Practice questions from Job Costing

Pricing a Job: Estimates, Profit and Quotations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Pricing a Job: Estimates, Profit and Quotations: frequently asked questions

How do I calculate the quotation price in job costing?

Prepare the job cost sheet with materials, labour, direct expenses and overheads to reach total cost. Then add the required profit. The result is the quotation price.

What is the difference between profit on cost and profit on sales?

Profit on cost is a percentage of the total cost of the job. Profit on sales is a percentage of the selling price. For the same percentage, profit on sales gives a higher price than profit on cost would give, so 20% on sales is not the same as 20% on cost.

How do I convert profit on cost to profit on sales?

Divide the profit percentage on cost by (100 + that percentage) and multiply by 100. For example, 25% on cost gives 25 ÷ 125 × 100 = 20% on sales.

Is the quotation price the same as the actual cost of the job?

No. The quotation is based on estimates made before the job begins. The actual cost is found from the job cost sheet after completion. The difference shows how accurate the estimate was.