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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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Verified Answer
A Company wishes to earn a 20% profit margin on selling price. Which o...
Let's assume the Selling price per unit = Rs.100
Profit on Selling price is given 20% i.e. Rs.20
Therefore cost per unit will be: Selling price per unit - Profit per unit
= Rs.100 - Rs.20 = Rs.80 = Cost Price per unit
Hence Cost price per unit is Rs.80 and the Profit per unit is Rs.20
Then profit % on cost = Profit/Cost Price *100 = 20/80*100 = 25 % on cost price.
Most Upvoted Answer
A Company wishes to earn a 20% profit margin on selling price. Which o...
Profit Margin and Profit Mark Up:
Before we understand the solution to the given problem, let us first understand the concepts of profit margin and profit mark up.
- Profit Margin: Profit margin is the percentage of profit earned on the selling price of a product or service. It is calculated by dividing the profit by the selling price and multiplying the result by 100.
Profit Margin = (Profit/Selling Price) x 100
- Profit Mark Up: Profit mark up is the percentage of profit earned on the cost of a product or service. It is calculated by dividing the profit by the cost and multiplying the result by 100.
Profit Mark Up = (Profit/Cost) x 100
Solution:
Given, the company wishes to earn a 20% profit margin on selling price.
Let us assume the cost of the product or service to be Rs.100.
- Selling Price: The selling price of the product or service can be calculated as follows:
Selling Price = Cost + Profit
Let the selling price be SP.
SP = Cost + Profit
SP = Rs.100 + (20/100) x SP
SP - (20/100) x SP = Rs.100
(80/100) x SP = Rs.100
SP = (100/80) x Rs.100
SP = Rs.125
Therefore, the selling price of the product or service is Rs.125.
- Profit: The profit earned on selling the product or service can be calculated as follows:
Profit = Selling Price - Cost
Profit = Rs.125 - Rs.100
Profit = Rs.25
Therefore, the profit earned on selling the product or service is Rs.25.
- Profit Mark Up: The profit mark up on cost can be calculated as follows:
Profit Mark Up = (Profit/Cost) x 100
Profit Mark Up = (Rs.25/Rs.100) x 100
Profit Mark Up = 25%
Therefore, the profit mark up on cost that will achieve the required profit margin of 20% on selling price is 25%.
Hence, option (b) is the correct answer.
Before we understand the solution to the given problem, let us first understand the concepts of profit margin and profit mark up.
- Profit Margin: Profit margin is the percentage of profit earned on the selling price of a product or service. It is calculated by dividing the profit by the selling price and multiplying the result by 100.
Profit Margin = (Profit/Selling Price) x 100
- Profit Mark Up: Profit mark up is the percentage of profit earned on the cost of a product or service. It is calculated by dividing the profit by the cost and multiplying the result by 100.
Profit Mark Up = (Profit/Cost) x 100
Solution:
Given, the company wishes to earn a 20% profit margin on selling price.
Let us assume the cost of the product or service to be Rs.100.
- Selling Price: The selling price of the product or service can be calculated as follows:
Selling Price = Cost + Profit
Let the selling price be SP.
SP = Cost + Profit
SP = Rs.100 + (20/100) x SP
SP - (20/100) x SP = Rs.100
(80/100) x SP = Rs.100
SP = (100/80) x Rs.100
SP = Rs.125
Therefore, the selling price of the product or service is Rs.125.
- Profit: The profit earned on selling the product or service can be calculated as follows:
Profit = Selling Price - Cost
Profit = Rs.125 - Rs.100
Profit = Rs.25
Therefore, the profit earned on selling the product or service is Rs.25.
- Profit Mark Up: The profit mark up on cost can be calculated as follows:
Profit Mark Up = (Profit/Cost) x 100
Profit Mark Up = (Rs.25/Rs.100) x 100
Profit Mark Up = 25%
Therefore, the profit mark up on cost that will achieve the required profit margin of 20% on selling price is 25%.
Hence, option (b) is the correct answer.
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Community Answer
A Company wishes to earn a 20% profit margin on selling price. Which o...
Let's assume the Selling price per unit = Rs.100
Profit on Selling price is given 20% i.e. Rs.20
Therefore cost per unit will be: Selling price per unit - Profit per unit
= Rs.100 - Rs.20 = Rs.80 = Cost Price per unit
Hence Cost price per unit is Rs.80 and the Profit per unit is Rs.20
Then profit % on cost = Profit/Cost Price *100 = 20/80*100 = 25 % on cost price.
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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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