CA Intermediate · Cost and Management Accounting · Job Costing
Mehta Engineers quotes prices at cost plus 25% profit on selling price. The cost of Job 31 is estimated at Rs 1,80,000. What quotation price should be given?
The quotation price should be Rs 2,40,000. Since profit is 25% of selling price, cost equals 75% of selling price, so price is 1,80,000 divided by 0.75. Adding 25% to cost instead would wrongly give Rs 2,25,000.
- ARs 2,25,000
- BRs 2,40,000Correct
- CRs 2,05,000
- DRs 2,32,500
Explanation
Profit is 25% of selling price, so cost is 75% of selling price. Selling price = 1,80,000 / 0.75 = 2,40,000. Check: 25% of 2,40,000 = 60,000 and 2,40,000 - 60,000 = 1,80,000. Adding 25% on cost gives 2,25,000, which is the wrong base.
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