What is the formula for determining selling prices?

What is the formula for determining selling prices?

• A. Selling price = (Cost / Desired profit margin) + Cost
• B. Selling price = (Cost x Desired profit margin) - Cost
• C. Selling price = (Cost x Desired profit margin) + Cost
• D. Selling price = (Cost - Desired profit margin) / Cost

Answer: (C)

Pricing should cover the cost and include the profit you want. When the desired profit margin is expressed as a multiplier, the selling price is found by taking the cost and increasing it by that margin. In other words, selling price = cost × (1 + profit margin). The given formula does exactly that by multiplying the cost by the profit margin and then adding the original cost: Cost × Desired profit margin + Cost. This is the same as Cost × (1 + Desired profit margin), which reliably yields a price that covers cost and delivers the intended profit. For example, if the cost is 50 and you want a 25% profit margin, this formula gives 50 × 0.25 + 50 = 12.5 + 50 = 62.5, which is the same as 50 × 1.25 = 62.5. The other forms don’t align with earning a set profit on cost. Dividing by the margin would produce a different price scale; subtracting the cost from the margin term can lead to nonsensical results (often negative) for typical margins; and using a ratio of costs won’t yield a concrete selling price.

Pricing should cover the cost and include the profit you want. When the desired profit margin is expressed as a multiplier, the selling price is found by taking the cost and increasing it by that margin. In other words, selling price = cost × (1 + profit margin). The given formula does exactly that by multiplying the cost by the profit margin and then adding the original cost: Cost × Desired profit margin + Cost. This is the same as Cost × (1 + Desired profit margin), which reliably yields a price that covers cost and delivers the intended profit.

For example, if the cost is 50 and you want a 25% profit margin, this formula gives 50 × 0.25 + 50 = 12.5 + 50 = 62.5, which is the same as 50 × 1.25 = 62.5.

The other forms don’t align with earning a set profit on cost. Dividing by the margin would produce a different price scale; subtracting the cost from the margin term can lead to nonsensical results (often negative) for typical margins; and using a ratio of costs won’t yield a concrete selling price.