Direct costs are $7,200; overhead is 12% and profit is 10%. What is the selling price if overhead and profit are calculated as percentages of the selling price?

Direct costs are $7,200; overhead is 12% and profit is 10%. What is the selling price if overhead and profit are calculated as percentages of the selling price?

• A. $8,064.00
• B. $9,230.77
• C. $7,980.00
• D. $7,500.00

Answer: (B)

When overhead and profit are percentages of the selling price, the selling price must cover the direct costs plus those fractions of itself. Let the selling price be S. Overhead = 0.12S and profit = 0.10S, so the total amount must satisfy S = 7,200 + 0.12S + 0.10S. Combine the S terms: S = 7,200 + 0.22S. Rearrange: 0.78S = 7,200, so S = 7,200 / 0.78 = 9,230.77. This checks out since overhead ≈ 1,107.69 and profit ≈ 923.08, and 7,200 + 1,107.69 + 923.08 = 9,230.77.

When overhead and profit are percentages of the selling price, the selling price must cover the direct costs plus those fractions of itself. Let the selling price be S. Overhead = 0.12S and profit = 0.10S, so the total amount must satisfy S = 7,200 + 0.12S + 0.10S.

Combine the S terms: S = 7,200 + 0.22S. Rearrange: 0.78S = 7,200, so S = 7,200 / 0.78 = 9,230.77.

This checks out since overhead ≈ 1,107.69 and profit ≈ 923.08, and 7,200 + 1,107.69 + 923.08 = 9,230.77.