Question

Monte's Autorana is having an end-of-year clearance in which the TV ads proclaim that

all cars are sold at 5% markup over the dealer's cost. Monte has a new Exfinity for sale
for $18,970. On the Internet, you find out that this particular model has a dealer cost of
$17,500. Is Monte being honest in his advertising?

Answer 1

No

Explanation:

We first write out $17,500 as a multiplication to 5%

New price = 17500 x 1.05 = 18375 = $18,375

18375-17500 = 875

We then work out the tax on just the mark up of $875 increase

20% mark up = 875 x 0.20 = 175

18.375+175 = 18550

= $18,550 charge to be considered for 5%

However Monte would argue that tax on tax also applies to 875 x 1.20 = 1050

=$1050 and he is just asking to meet half tax costs an extra 10% of his own tax back of 17.500 x 20% that he paid = 17500 x 0.20 = 3500

tax he paid inclusive or non inclusive would be the same.

= $3500

10% of this = 3500 x 0.10 = 350

18550+350 = 18,900

Therefore it is not dishonest if mentioned in the terms and conditions.

We also universally can round 5% up by applying other charges to include promotion costs and even apply more for administration costs.