ACCA Applied Knowledge · Management Accounting · Cost accounting methods
A job is to be priced to earn a profit margin of 25% on selling price. Total cost of the job is $9,000. What selling price should be quoted?
The selling price should be $12,000. A 25% margin on selling price means cost represents 75% of the price, so price equals $9,000 divided by 0.75. Adding 25% to cost instead would give $11,250, which is a mark-up rather than a margin.
- A$11,250
- B$12,000Correct
- C$13,500
- D$10,800
Explanation
A 25% margin on selling price means cost is 75% of price. Price = 9,000 / 0.75 = $12,000. Check: profit 3,000 is 25% of 12,000. Adding 25% to cost gives $11,250, which is a mark-up and not a margin.
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