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 Question from brian: Hi , If I have direct job costs of $100. and my administration is 20 % and I want to make a 15 % profit , how would I calculate the administration and profit and what would be the total of each be and also the final total ? Thanks, Brian Hi Brian, When you state a percentage you should really say percentage of what. For example you say your administration is 20% by which I assume you mean 20% of the direct costs. 20% is$\frac{20}{100}$so 20% of the direct costs is $\frac{20}{100} \times \100 = \20.$ Thus your administration cost is$\$20$ and hence your costs are $\$100 + \$20 = \$120.$Now you want a profit of 15%. Is that 15% of your costs ($\$120$) or do you want your profit to be 15% of what your customer pays? If your profit is to be 15% of your costs then your profit is

$\frac{15}{100} \times \120 = \18$

and the cost to your customer would be $\$120 + \$18 = \$138.$If your profit is to be 15% of what your customer pays you have to work a little harder. If your customer pays you$\$C$ and your profit is 15% of these $C$ dollars then your costs are 85% of the $C$ dollars. Thus

$\frac{85}{100} \times \C = \120.$

If you multiply both sides of this equation by $\frac{100}{15}$ you get

$\C = \frac{100}{85} \times \120 = \141.18.$

Thus you would charge your customer $\$141.18$and your profit would be$\$141.18 - \$120 = \$21.18.$

I hope this helps,
Penny

Brian wrote back

Hi , I have a further question on the same subject , if my direct cost is $\$100$. and my administration costs are 20% and I want to make 15% profit. My accountant told me I can divide 100 by 65,$\$100/65 = \$153.$Does this make sense or should it be$\$100 * 20\% =120 / 85 = \$141.17$Thanks, Brian. Hi Brian, WE all use the term percent in a non-precise way and this question really makes that clear. You accountant has yet another valid way o interpret your question. He (or she) sees the cost to the customer,$\$C$ in three distinct parts. 20% of $\$C$is the administration cost, 15% of$\$C$ is your profit and the remainder is your direct cost. The remainder after removing the 20% plus 15% is 65% and thus your fixed cost is 65$of$\$C.$ That is

$0.65 \times \C = \100.$

Dividing both sides of this equation by $0.65$ gives

$\C = \frac{\100}{0.65} = \153.85$

All three answers are correct. Which you choose depends on what your interpretation of percentage of what.

Penny

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