Answer:In a business, traditional accounting profit is calculated by subtracting costs and expenses from
sales revenue for a specified period. Determining a suitable selling price for each product or service
is crucial for long-term sustainability. Some firms use a cost plus methodology, marking up the cost
of each product or service by a certain percentage that is large enough to cover expenses and still
leave a respectable profit. Other organizations select their desired profit percentages first, and then
work backwards to set their prices.
Suppose you were operating a bicycle shop and selling adult mountain bikes that cost $200
each from your supplier. Using a cost plus approach you might add a 20% markup to the cost of
bikes sold in the shop in order to cover your additional expenses and make a profit. In this case,
you would charge your customers $240 for the bikes, and your resulting profit percentage would
be $40/$240 = 162
∕
3%. If, however, you wanted to price the bikes in order to earn 20% profit, you
would have to charge your customers $250 for the same bicycles ($50/$250 5 20%).
Step-by-step explanation:
