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A Company wishes to earn a 20% profit margin on selling price. Which of the following is the profit mark up on cost, which will achieve the required profit margin?
- a)33%
- b)25%
- c)20%
- d)None of the above
Correct answer is option 'B'. Can you explain this answer?
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Profit Margin on Selling Price:
The profit margin on selling price is the percentage of profit earned on the selling price of a product. It is calculated by dividing the profit by the selling price and multiplying by 100.
Profit Margin on Selling Price Formula:
Profit Margin on Selling Price = (Profit / Selling Price) * 100
Profit Margin on Selling Price Requirement:
In this question, the company wishes to earn a 20% profit margin on the selling price.
Profit Mark Up on Cost:
The profit mark up on cost is the percentage of profit earned on the cost of a product. It is calculated by dividing the profit by the cost and multiplying by 100.
Profit Mark Up on Cost Formula:
Profit Mark Up on Cost = (Profit / Cost) * 100
Relationship between Profit Margin on Selling Price and Profit Mark Up on Cost:
There is a relationship between the profit margin on selling price and the profit mark up on cost. This relationship can be determined by using the following formula:
Profit Margin on Selling Price = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost)) * 100
This formula helps us convert the profit mark up on cost to the profit margin on selling price.
Calculation:
Let's calculate the profit mark up on cost that will achieve the required profit margin of 20% on the selling price.
Profit Margin on Selling Price = 20%
Profit Margin on Selling Price = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost)) * 100
20% = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost)) * 100
20% = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost))
0.2 = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost))
0.2(1 + Profit Mark Up on Cost) = Profit Mark Up on Cost
0.2 + 0.2 * Profit Mark Up on Cost = Profit Mark Up on Cost
0.2 = 0.8 * Profit Mark Up on Cost
Profit Mark Up on Cost = 0.2 / 0.8
Profit Mark Up on Cost = 0.25
Therefore, the profit mark up on cost that will achieve the required profit margin of 20% on the selling price is 25%. Hence, option B is the correct answer.
The profit margin on selling price is the percentage of profit earned on the selling price of a product. It is calculated by dividing the profit by the selling price and multiplying by 100.
Profit Margin on Selling Price Formula:
Profit Margin on Selling Price = (Profit / Selling Price) * 100
Profit Margin on Selling Price Requirement:
In this question, the company wishes to earn a 20% profit margin on the selling price.
Profit Mark Up on Cost:
The profit mark up on cost is the percentage of profit earned on the cost of a product. It is calculated by dividing the profit by the cost and multiplying by 100.
Profit Mark Up on Cost Formula:
Profit Mark Up on Cost = (Profit / Cost) * 100
Relationship between Profit Margin on Selling Price and Profit Mark Up on Cost:
There is a relationship between the profit margin on selling price and the profit mark up on cost. This relationship can be determined by using the following formula:
Profit Margin on Selling Price = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost)) * 100
This formula helps us convert the profit mark up on cost to the profit margin on selling price.
Calculation:
Let's calculate the profit mark up on cost that will achieve the required profit margin of 20% on the selling price.
Profit Margin on Selling Price = 20%
Profit Margin on Selling Price = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost)) * 100
20% = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost)) * 100
20% = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost))
0.2 = (Profit Mark Up on Cost / (1 + Profit Mark Up on Cost))
0.2(1 + Profit Mark Up on Cost) = Profit Mark Up on Cost
0.2 + 0.2 * Profit Mark Up on Cost = Profit Mark Up on Cost
0.2 = 0.8 * Profit Mark Up on Cost
Profit Mark Up on Cost = 0.2 / 0.8
Profit Mark Up on Cost = 0.25
Therefore, the profit mark up on cost that will achieve the required profit margin of 20% on the selling price is 25%. Hence, option B is the correct answer.
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A Company wishes to earn a 20% profit margin on selling price. Which of the following is the profit mark up on cost, which will achieve the required profit margin?a)33%b)25%c)20%d)None of the aboveCorrect answer is option 'B'. Can you explain this answer?
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