Planning & EstimatingQuestion 611 of 700
Two contractors discuss pricing. What is the correct distinction between 'markup' and 'gross margin'?
a.Markup and gross margin are two names for the exact same percentage.
b.Markup is the gross profit expressed as a percentage of COST; gross margin is the gross profit expressed as a percentage of the selling PRICE.
c.Markup is always a smaller dollar amount than gross margin on the same job.
d.Gross margin is a percentage of cost, while markup is a percentage of price.
Explanation
Correct: markup% = (price - cost) / cost, while margin% = (price - cost) / price. The same gross-profit dollars are divided by two different bases, so the markup percentage is always larger than the margin percentage. 'Same percentage' is wrong because the bases differ. The dollar gross profit is identical either way, so 'smaller dollar amount' is wrong. The last option reverses the two definitions.
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