Question

Mike buys some electronic goods from a wholesaler for \[Rs.650\] and spends $Rs.200$ on its transportation, etc. If he sells these electronic goods for$Rs.900$ ; find the overhead expenses spent by Mike. and find profit.
\[\left( A \right).\] $Rs.650,Rs.50$
\[\left( B \right).\] $Rs.900,Rs.150$
\[\left( C \right).\] $Rs.200,Rs.50$
\[\left( D \right).\] $Rs.850,Rs.100$

Answer 1

Hint: Overhead expenses are the variable, fixed or semi variable expenses that are not directly involved with a company’s service or the product. For example transportation expenses, rent expenses, administrative expenses or employee salaries. Therefore overhead charge becomes a part of the cost price.

Complete step-by-step solution:
The transportation expenses will be considered as overhead expenses. That is overhead expenses $ = Rs.200$
Cost price $\left( {CP} \right)$ = Payment made while purchasing the goods $ + $ overhead expenses.
It is given that Mike buys electronic goods at $Rs.650$ and spends $Rs.200$ on transportation (Overhead expenses).
Therefore, the total cost price of electronic goods $\left( {CP} \right)$ $ = Rs.650 + Rs.200$
$CP = Rs.850$
Given, Selling price $\left( {SP} \right)$ $ = Rs.900$
Hence, $SP > CP$. [Selling price is greater than the cost price]
We know that, profit $ = SP - CP$ $\left( {\because SP > CP} \right)$
Therefore, profit $ = Rs.900 - Rs.850$
Profit $ = Rs.50$
Hence, the correct option is C, $Rs.200,Rs.50$.

Note: Because of overhead expenses that are extra expenses, the actual profit will become less. The person should include the overhead expenses to the cost price and then sell the goods by keeping the selling price more than the total cost price to get the profit.