With a 40% markup on selling price, the cost is 60% of the selling price.

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Prepare for the AAMI Small Business Management Test with flashcards and multiple choice questions; each question comes with hints and explanations. Get exam ready!

Multiple Choice

With a 40% markup on selling price, the cost is 60% of the selling price.

Explanation:
Understanding how markup on selling price works helps here. If the markup is 40% of the selling price, that extra amount is 0.40 times the selling price. Since the selling price equals cost plus that markup, you can write S = C + 0.40S. Rearranging gives C = S − 0.40S = 0.60S. So the cost is 60% of the selling price. For example, if the selling price is 100, the cost is 60 and the markup is 40. Therefore the statement is true. The other options don’t fit because the math directly follows from defining the markup as a percentage of the selling price, leaving no ambiguity.

Understanding how markup on selling price works helps here. If the markup is 40% of the selling price, that extra amount is 0.40 times the selling price. Since the selling price equals cost plus that markup, you can write S = C + 0.40S. Rearranging gives C = S − 0.40S = 0.60S. So the cost is 60% of the selling price. For example, if the selling price is 100, the cost is 60 and the markup is 40. Therefore the statement is true. The other options don’t fit because the math directly follows from defining the markup as a percentage of the selling price, leaving no ambiguity.

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