Which question are you referring to?
If it is Question 5, since the profit is 20% of the cost the selling price must be 100% + 20% = 120% of the cost.
Therefore the target cost must be 600/120% = $500.

It took my brain a while to figure out that reverse mathematical operation! I was only convinced when I realized that 20% of 500 (the unknown cost price) is 100 and when added gives us that 600 sale price. Defeated by math…
Posted for anyone else coming here to figure it out.

Tahsina97 says

Hi John,

For Q5 I did the following calculations:

Sales revenue $600 × 5000 = $3,000,000

Profit required 20/120 × $3,000,000 = $500,000

Total cost $3,000,000 – $500,000 = $2,500,000

Target cost p/unit $2,500,000 / 5000 = $500

Cost gap $520 – $500 = $20

I got the same answer, would my calculations be OK for the exam?

Thanks,

Tahsina

John Moffat says

Yes. (and nobody looks at your workings anyway for the section A and B questions 🙂 )

luzango says

Thank you John I got 100%

John Moffat says

Great 🙂

Thalia-L says

Dear John, i still have some confuse about the Q2, why we can not 300*1.2=250?

So if I do this, does that mean that 250 is the rate of return that it expects to get?

John Moffat says

250 is certainly not a rate of return (rates of returns are %’ages!).

They require a return on investment of 20% and therefore they want a profit of 20% x $1,250,000.

What you are doing would be correct if they wanted a profit on cost (i.e. a profit margin) of 20%.

It would seem you did not watch my free lectures before attempting the test because this example is similar to example 2 in my lecture.

omavictor says

Thanks John. I sincerely appreciate.

John Moffat says

Thank you for your comment 🙂

adamuabass65@gmail.com says

Thanks John, your explanation was explicit as I scored 100% on the MCQ test.

lwhnatalie says

I got full in this quiz, thanks to John’s very thorough interpretations. 🙂

John Moffat says

Well done 🙂

otema2017 says

Its all good for me on this chapter

hermela says

thank you Mr. I get 100%… it was really very clear and digestible lecture

renelledominique says

I was very confused about the 100. Still a little unsure

John Moffat says

Which question are you referring to?

If it is Question 5, since the profit is 20% of the cost the selling price must be 100% + 20% = 120% of the cost.

Therefore the target cost must be 600/120% = $500.

Dumbest says

thank you so much lecture for the test

John Moffat says

You are welcome.

melclarke says

It took my brain a while to figure out that reverse mathematical operation! I was only convinced when I realized that 20% of 500 (the unknown cost price) is 100 and when added gives us that 600 sale price. Defeated by math…

Posted for anyone else coming here to figure it out.

daveodipo says

For sure. I think the vocabulary is just as important!

Esther10 says

Thanks for the lecture and the questions

etm97 says

Oh yeah! ?%

SSEMENGO says

This was perfect am probably progressing i got 100%.despite being average in chapt.1 Thank you Open tuition.

ythomas says

Hi, I’m confused by question 5..

Is it possible you can do a breakdown?

John Moffat says

The selling price is $600.

For the profit to be 20% of the cost, the cost needs to be 100/120 x $600 = $500, and this is therefore the target cost.

The estimated cost is actually $520, and therefore the cost gap is 520 – 500 = $20.

Ibrahim2691 says

I hope am making a progress

anisnajihah99 says

Thank youu for the quiz . I got 8% . My mistake at Q5 , i think the markup is markup cost ??

John Moffat says

The mark-up is the profit as a % of the cost.