Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Markup & Margin Problem

- This topic has 1 reply, 2 voices, and was last updated 4 months ago by John Moffat.

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- May 29, 2023 at 8:41 pm #685406
I have seen your lecture but got few problems understanding them so i thought to ask you instead.

Is it true that:

1) Markup is the profit as a proportion to the cost to determine the selling price for the product?

2) Margin is the profit as a proportion to the selling price to determine the cost for the product?

3) Markup & Margin are used to refer to a gross profit or net profit?

4) The only point for the use of markup is to determine the selling price whereas the only point for the use of margin is to determine the cost?

5) It is correct to say that manufacturing businesses use markup in order to determine the cost because they don’t know what the cost would be (if it is their first time) but they know the selling price of a product so they add profit % on the selling price to choose the cost for their product?

6) It is correct to say that retail businesses (non-manufacturing businesses) use margin in order to determine the selling price because they don’t know the selling price but they know the cost of making the product so they add profit % on the cost to choose a suitable selling price for their product?

Sorry for a lengthy question but Thanks for your time 🙂

May 30, 2023 at 8:56 am #685443Mark-up and margin are just two different ways of showing the % profit and in the exam questions are testing that you know how to use them.

Businesses might use a fixed mark-up to decide on a selling price, but there are lots of other factors they would take into account (such as the prices being charged by competitors), but this is not relevant until Paper PM.

In real life they will notes the margin to find out the cost – they will know what their costs are!!

In the exam, questions again are testing that you know what the terms mean and that you can use them in calculations. The main use of them in real life is as a measure of profitability that can be used to compare with previous years or with other businesses in order to see if they are doing better or worse.

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