Business FinancesQuestion 1103 of 1632
A contractor wants a 40% gross margin on a job whose direct costs are $6,000. What selling price must he set?
a.$8,400
b.$9,000
c.$8,000
d.$10,000
Explanation
For a target margin, divide cost by (1 - margin). Selling price = $6,000 / (1 - 0.40) = $6,000 / 0.60 = $10,000. Check: profit = $10,000 - $6,000 = $4,000, and $4,000 / $10,000 = 40% margin. Marking up 40% on cost ($8,400) would give only a 28.6% margin, a common and costly error.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)