Costing and decison making

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I've been trying the questions asked on the Osbourne's website, found them very helpful. Can someone please help me with the following question as i dont understand how they have arrived at the answer.<BR>Thank you.<BR><BR>SV Limited manufactures batches of souvenir pottery items for football clubs. Batch number 52F consists of 8,000 items, for which the costs are expected to be as follows:<BR> <BR>Direct materials: £10,000<BR>Direct labour: <BR>- moulding: 1,000 hours at £6.50 per hour = £6,500<BR>- finishing: 1,000 hours at £7.50 per hour = £7,500<BR> <BR>SV Limited uses an overhead absorption rate of £8 per direct labour hour and a profit mark-up of 40% is added to the total cost. <BR><BR>Which one of the following is the selling price per unit of the souvenirs in batch 52F?<BR><BR>Answer A £4.20 <BR>Answer B £5.00 <BR>Answer C £5.60 <BR>Answer D £7.00 <BR>The correct answer is: D <BR><BR>Help!!!!

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Costing and decison making

    Use this formula:<BR>Mark up = mark up on cost<BR>Sales=140%<BR>Cost of Sales = 100%<BR>Gross Profit = 40%<BR><BR>Its is saying that on each unit sold they want to mark up 40% of the cost of production<BR><BR>Direct Materals=£10,000<BR>Direct Labour Moulding= £6,500<BR>Finishing= £7,500<BR>Overhead absorbed = 2,000 x £8 = £16,000 (for both moulding and finishing)<BR><BR>Total Cost = £40,000<BR><BR>If you Total cost of sales is £40,000, you need to figure out what is your actual total sales:<BR><BR>Total Sales = £40,000/100%x140%=£56,000<BR>Per unit = £56,000/8,000=£7.00<BR><BR>Hope this helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Costing and decison making

    Surley the easiest way is £5 x 40% = £2 plus £5 = £7?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Costing and decison making

    It maybe to easiest but the examiner will look for all the workings. Even if you get the answer wrong, if you can apply and show the logic you will still get the marks.

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