ACCA Applied Knowledge · Financial Accounting · Incomplete records
A trader sells goods at a mark-up of 25% on cost. What is the gross profit margin on sales?
The margin is 20%. A 25% mark-up on a cost of 100 gives a selling price of 125 and a profit of 25, and profit divided by sales of 125 is 20%. The mark-up is based on cost, whereas margin is based on sales.
- A25%
- B20%Correct
- C33.3%
- D75%
Explanation
Let cost be 100; selling price is 125 and gross profit is 25. Margin = 25/125 = 20%. Using 25% treats the mark-up as the margin, which is the wrong base (cost instead of sales).
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