Your profit should be 20% of your cost

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Quandaries & Queries

Question from anis:

if the customer says your profit should be 20% of your cost.

1) my selling value should be cost +20% of cost = SP

2)cost / 0.80 = SP which is correct...if the second answer is right how should i justify my customer

Hi Anis,

Selling price, $SP$ is made up of two parts, cost $C$ and profit $P.$

\[SP = C + P\]

If the profit is to be 20% of the cost then $P = 0.20 C$ and you get your option 1) above,

\[SP = C + 0.20 C.\]

The other expression $SP = \frac{C}{0.80}$ can be rewritten by multiplying both sides by $0.80$ to obtain

\[C = 0.80 SP\]

so the cost is 80% of the selling price. Hence the remaining 20% of the selling price is the profit.

Thus in 1) the profit is 20% of the cost and in 2) the profit is 20% of the selling price.

I hope this helps,
Penny

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