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Below question from Kaplan Chapter 2 Example 7:
A product has a total production cost of $60. Determine the selling price for the product if the company wants to achieve:
(a) A 20% mark-up on total production cost
Answer is $72
(b) A 20% margin on total production cost
Answer is $75
Is there anyone can tell me why Mark-up SP is $72 and Margin SP is $75 please? I thought for same product Mark-up will give a higher price than Margin?
Thank you for your question.
There is no reason why markup would be higher than the markup. They are just different formula
For example if product cost is $60 as above the:
Selling price with 20% markup = 60 * 1.2 = $72
Selling price if we are told its a 20% MARGIN then will be calculated as below:
60 /1-0.2 = $75
You just need to be aware in CIMA questions which one is being asked ( markup or margin) a comparison between the two is not required.
Hope that helps