A business marks up all of its products by 20% on total cost to calculate a selling price.
Each unit of product uses 4 hours of direct labour and 2 kilos of direct material.
The correct overhead absorption rate to be used is $8 per direct labour hour.
In error the book-keeper used a rate of $13 per direct labour hour.
What was the effect of this error on the selling price of one unit of the product?
1 )
$5
2 )
$12
3 )
$20
$24
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