Principles of Marketing Question (Offical Study Guide)

Discussion in 'CLEP, DANTES, and Other Exams for Credit' started by retake, Aug 18, 2009.

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  1. retake

    retake New Member

    I'm currently studying for Principles of Marketing. Question #14 on p. 486 states the following:

    A toy manufacturing firm sold its product through a toy wholesaler, who in turn sold to appropriate retailers. The manufacturer's price is $20 to the wholesaler, whose markup is usually 20 percent on the selling price to the retailer. If the retailer's markup on the selling price to the customer is 50 percent, what is the price to the customer?

    (A) $24.00
    (B) $30.00
    (C) $36.00
    (D) $37.50
    (E) $50.00

    I thought the answer was C ($36.00). My logic: manufacturer's price to wholesaler is $20.00. The wholesaler marks the price up 20% to $24.00. The retailer then marks the price up 50% to $36.00.

    However, the answer key is telling me that the answer is $50.00. Is this a mistake or am I missing something?
     
  2. frankiebleyes

    frankiebleyes New Member

    $20.00 plus 20% markup = 25.00 then 50% markup makes it $50.00 No, I am wrong, sorry.
     
    Last edited by a moderator: Aug 18, 2009
  3. retake

    retake New Member

    I figured it out. Apparently, there are two ways to calculate markup. It can be calculated as a percentage of selling price or as a percentage of cost. I didn't study enough to realize this.

    In the example above, take the manufacturer's price of $20 and divide it by .80 (1.00-0.20) and you get $25. Now, take $25 and divide it by .50 (1.00-0.50) and you get $50.

    Fairly simple.
     

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