Sales Representative.

I have what should be an easy one.

If it costs me $100.00 to manufacture an item and I want to sell it at a 25% mark up, why do I get different answers when I perform the operation the following ways?

1. $100.00 x 25% = $25.00
$100.00 + $25.00 - $125.00

2. $100.00 / .75 = $133.334

Should these two not be equal? I would like this explained to me please.

Thank you

Hi Vivian,

The fact that these two prices are not equal shows that the phrase "a 25% mark up" is ambiguous. More precisely, it does not say 25% of WHAT. So it can be interpreted as

"the selling price is obtained by adding 25% of the manufacture cost to the manufacture cost" (which is your first calculation) or "the manufacture cost is obtained by subtracting 25% of the selling price from the selling price" (which is your second calculation).

When percentages are involved you it is important to understand what the percentages refer to. For example in your situation suppose you add 25% of the manufacturing cost to your $100.00 item to get a selling price of $125.00. Then you decide to have a "25% reduction sale". I would understand the reduction to be 25% of the selling price of $125.00. But $125.00 x 25% = $31.25 and you would receive $125.00 - $31.25 = $93.75. Hence a 25% markup followed by a 25% reduction results in you losing money.

Penny and Claude
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