AdministrationQuestion 80 of 110
A plumbing job has a direct cost of $9,000. The contractor wants a 20 percent profit margin measured on the selling price (not markup on cost). Using price = cost / (1 - margin), what is the selling price?
a.$10,800
b.$11,000
c.$13,500
d.$11,250
Explanation
Price = 9,000 / (1 - 0.20) = 9,000 / 0.80 = $11,250. A margin is figured on the selling price, so you divide by one minus the margin rather than simply adding 20 percent to cost. Adding 20 percent as a markup would give only $10,800 and miss the intended margin.
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