A product will be sold at a target price of £50. The company wants a profit margin of 30% on selling price. What is the target cost?
Answer and explanation
Correct answer: A. £35
- Step 1: Target cost = target selling price − required profit.
- Step 2: Required profit = 30% × £50 = £15.
- Step 3: Target cost = £50 − £15 = £35.
Answer
£35.
Why not the others: £15: This is the target profit and not the target cost. £38.46: This treats the margin as a percentage of cost, instead of selling price. £65: This adds the profit to the price instead of deducting it.
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