If direct costs are $37,000 with overhead at 12% and profit at 5%, what is the calculated selling price?

If direct costs are $37,000 with overhead at 12% and profit at 5%, what is the calculated selling price?

• A. $42,500
• B. $44,578.31
• C. $40,000
• D. $41,500

Answer: (B)

To find the calculated selling price, you need to consider both the overhead and profit margins applied to the direct costs. Begin with the direct costs of $37,000. First, calculate the overhead. The overhead is a percentage of the direct costs; in this case, it's 12% of $37,000. This calculation is done as follows: Overhead = Direct Costs × Overhead Percentage Overhead = $37,000 × 0.12 = $4,440 Next, you add this overhead to the direct costs to find the total costs before applying profit: Total Costs = Direct Costs + Overhead Total Costs = $37,000 + $4,440 = $41,440 Now, profit is calculated as a percentage of the total costs. The profit margin is 5%, so you take the total costs of $41,440 and calculate the profit: Profit = Total Costs × Profit Percentage Profit = $41,440 × 0.05 = $2,072 Finally, to find the selling price, you add the profit to the total costs: Selling Price = Total Costs + Profit Selling Price = $41,440 + $2,072 = $43,512

To find the calculated selling price, you need to consider both the overhead and profit margins applied to the direct costs.

Begin with the direct costs of $37,000. First, calculate the overhead. The overhead is a percentage of the direct costs; in this case, it's 12% of $37,000. This calculation is done as follows:

Overhead = Direct Costs × Overhead Percentage

Overhead = $37,000 × 0.12 = $4,440

Next, you add this overhead to the direct costs to find the total costs before applying profit:

Total Costs = Direct Costs + Overhead

Total Costs = $37,000 + $4,440 = $41,440

Now, profit is calculated as a percentage of the total costs. The profit margin is 5%, so you take the total costs of $41,440 and calculate the profit:

Profit = Total Costs × Profit Percentage

Profit = $41,440 × 0.05 = $2,072

Finally, to find the selling price, you add the profit to the total costs:

Selling Price = Total Costs + Profit

Selling Price = $41,440 + $2,072 = $43,512