Multiple choice

Somnath Enterprises wishes to earn a 20% profit margin on selling price. How much should they charge on cost to achieve the required margin?

  1. 50%

  2. 33%

  3. 25%

  4. 20%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Profit is 20% of sales, i.e. if sales Rs. 20, profit will be Rs. 20 and thus, cost will be Rs. 80. Thus, profit on cost will be 20/80 x 100, i.e. 25%.

AI explanation

If profit margin is defined on selling price (20% of selling price is profit), then cost makes up the remaining 80% of the selling price. To find the markup needed on cost, divide the margin by the cost proportion: 20%/80% = 25%. This is different from simply charging 20% on cost, because margin-on-price and markup-on-cost are related but distinct percentages.

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