Math CentralQuandaries & Queries


Question from Adrian:

I am working to increase pricing by 5%. If the price is 100, I would typically use the formulas 100 * 1.05 = 105, which is a $5 increase. An associate suggests I divide to get the desired increase. For example, using $100 with a 5 percent increase. I would use the formula 100/.95 = 105.26. This is a 5.26 increase. Can you explain this method to me an why the different increases? Which one is correct.



The important question here is percentage of what? In your calculation you add 5% of your price, $100, to get $100 + 0.05 × $100 = $105. Your associate on the other hand is looking at this problem from your customer's point of view., Your customer sees his cost, $x, and says that the markup is 5% of his cost. Hence your cost is 95% of his cost, $x, that is $100 = 0.95 × $x and thus $x = 100/0.95.


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