ACCA Applied Knowledge · Management Accounting · Cost accounting methods
A firm prices jobs at total cost plus a 25% profit margin on selling price. Job 31 has a total cost of $6,000. What is the selling price?
The selling price is $8,000. A 25% margin on selling price means cost represents 75% of the price, so $6,000 divided by 0.75 gives $8,000. Treating 25% as a mark-up on cost would wrongly give $7,500.
- A$7,500
- B$8,000Correct
- C$6,250
- D$7,200
Explanation
A margin of 25% on selling price means cost is 75% of price. Price = 6,000 / 0.75 = 8,000. The $7,500 option wrongly applies 25% as a mark-up on cost. Check: 25% of 8,000 = 2,000 profit, and 8,000 - 2,000 = 6,000.
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