If a plant costs $15.00 to produce, what selling price is required to realize a 25 percent profit on the sale?

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Multiple Choice

If a plant costs $15.00 to produce, what selling price is required to realize a 25 percent profit on the sale?

Explanation:
Profit on the sale means the profit is a percentage of the final selling price. If the selling price is SP and the profit is 25% of SP, then cost plus profit equals SP, and cost is 75% of SP (since SP − 0.25 SP = 0.75 SP). Set 15 = 0.75 × SP. Solving, SP = 15 / 0.75 = 20. The $5 profit is 25% of the selling price, and the selling price needed to realize that profit is $20. If you thought it was a 25% markup on cost instead, you’d get $18.75, but the phrase means 25% of the selling price, so $20 is correct.

Profit on the sale means the profit is a percentage of the final selling price. If the selling price is SP and the profit is 25% of SP, then cost plus profit equals SP, and cost is 75% of SP (since SP − 0.25 SP = 0.75 SP).

Set 15 = 0.75 × SP. Solving, SP = 15 / 0.75 = 20. The $5 profit is 25% of the selling price, and the selling price needed to realize that profit is $20. If you thought it was a 25% markup on cost instead, you’d get $18.75, but the phrase means 25% of the selling price, so $20 is correct.

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