Question

If the unit selling price is $2.50 and the unit cost is

$1.00, what action is needed to maintain the gross
margin percentage when unit cost increases $0.25?
Lower the selling price.
Increase the selling price more than $0.25.
Maintain the same selling price.
Increase the selling price $0.25.

Answer 1

D.

Increase by more than 0.25 dollars.

Explanation:

What is the gross margin %?

Margin % = (2.50/1.00) * 100 = 250%

If the cost goes up 0.25 what will the selling price have to do to maintain a markup of 250%?

250% =(x/1.25) * 100%

Divide by 100%

250 / 100 = x / 1.25

2.5 = x / 1.25

Multiply both sides by 1.25

2.5 * 1.25 = x

3.125 = x

But that is really not the question. The question is, how much higher is that now than it used to be?

3.125 - 2.50 = 0.625 cents.

So you would have to increase the selling price by more than 0.25