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Thanks Melanie – perfect explanation …
“I am confused between the right answer and thinking that mark up as a percentage of cost gives us a profit of $108. Please help”
The question states “There is a requirement to make a mark-up of 30%.” – This means your sales price of $400 needs to include a 30% mark-up on your costs or put another way must 130% of your costs. To get your $108 you are multiplying the $360 cost by 30%. This is of no relevance, you’ve just calculated what 30% of your production costs are. To achieve a mark-up of 30% on a sales price of $400 your sales price must be 130% of your costs: Therefore – $400 / 1.3 = $307.69 – Our costs must be $307.69 in order to achieve for $400 to be a 30% mark-up. They’re currently $360. We have a deficit or cost gap of $52.31 ($360 – $307.69)
Please assist not sure how you get 100 and 130.
100 and 130 are percentages, the price of the product is $400, and we know that this includes a mark-up of 30%. Therefore, $400/130 (100% cost plus the 30% mark up) then times by 100%. This gives you the target cost of £307.69. From this you can then calculate the cost gap.
Hope this helps!
I am confused between the right answer and thinking that mark up as a percentage of cost gives us a profit of $108. Please help
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