Markup pricing may be expressed as a percentage of either selling price or cost.

• A. True
• B. False
• C. Only selling price
• D. Only cost

Answer: (A)

Markup pricing is the practice of adding a profit margin to cost to set a selling price. That margin can be expressed in two common ways: as a percentage of cost or as a percentage of the selling price. If you base the markup on cost, you multiply the cost by (1 plus the markup rate) to get the selling price. If you express the same idea as a percentage of selling price, you’re stating what portion of the final price is profit, which will be a different percent than the cost-based figure but describes the same pricing outcome. For example, with a cost of 80 and a 50% markup on cost, the selling price is 120. That same price means a markup on selling price of 40/120, or 33.3%. This shows that markup can indeed be expressed relative to either cost or selling price.