Calculation of Profit Margin on Cost

To calculate the profit margin on cost, we need to first understand what profit margin is. Profit margin is the percentage of revenue that is left after deducting the cost of goods sold. In other words, it is the profit generated per unit of sale.

Formula for Profit Margin on Sales

Profit Margin on Sales = (Net Profit / Total Revenue) x 100

Where,
Net Profit = Total Revenue - Total Cost of Goods Sold

Formula for Profit Margin on Cost

Profit Margin on Cost = (Net Profit / Total Cost of Goods Sold) x 100

Where,
Net Profit = Total Revenue - Total Cost of Goods Sold

Calculation of Profit Margin on Cost

If the profit margin on sales is 33.33%, then the profit generated per unit of sale is equal to 33.33% of the revenue generated per unit of sale. Let's assume that the revenue generated per unit of sale is $100.

Profit Margin on Sales = 33.33%
Revenue per Unit of Sale = $100

Therefore,
Profit per Unit of Sale = 33.33% of $100 = $33.33

Now, let's calculate the cost per unit of sale. We know that the profit generated per unit of sale is equal to the revenue per unit of sale minus the cost per unit of sale. Using this equation, we can solve for the cost per unit of sale.

Profit per Unit of Sale = Revenue per Unit of Sale - Cost per Unit of Sale

$33.33 = $100 - Cost per Unit of Sale

Cost per Unit of Sale = $100 - $33.33 = $66.67

Therefore, the profit margin on cost is:

Profit Margin on Cost = (Net Profit / Total Cost of Goods Sold) x 100
Net Profit = $33.33
Total Cost of Goods Sold = $66.67

Profit Margin on Cost = ($33.33 / $66.67) x 100 = 50%

Therefore, the profit margin on cost is 50%. This means that for every dollar spent on producing the product, the company earns a profit of 50 cents.