0

Let's say my cost price for a part is $10, I need to charge 20% sales tax, and I want to sell it to make a 50% net margin, what would be the calculation to work out the price I'd need to charge a customer?

I know I would need to sell for \$30 because...

-\$5 is tax

-\$10 cost price

= $15 net profit

= 50% net margin.

I worked it out through intuition/trial and error, but what would be the calculation to know for a product of \$10 and a 50% net margin I'd need to charge \$30?

Many thanks.

BigBadMe
  • 103
  • How did you get these numbers? – Toby Mak Aug 12 '20 at 09:37
  • 1
    $5 is correct. $25 * 1.2 (20% tax) is $30, so the tax is $5. Remember on a $30 product the tax was added on to a pre-tax price, so it's $5, not $6 as you might initially think. – BigBadMe Aug 12 '20 at 09:40

1 Answers1

1

Let the selling price be $s$ and the pre-tax price be $p$. $p + 0.2p = s$, so $1.2p = s$, or $p = \frac{s}{1.2}$.

Then you have only is $s-(p+10) = s - (\frac{s}{1.2} + 10) = s - \frac{s}{1.2} + 10$ dollars left in profit, which is half of your selling price $s$. Therefore:

$$s - \frac{s}{1.2} + 10 = \frac{1}{2}s$$ $$10 = \frac{1}{2}s - s + \frac{s}{1.2}$$ $$10 = (\frac{1}{2}-1+\frac{1}{1.2})s$$ $$\frac{-10}{1/2 - 1 + 1/1.2} = s$$ $$s = 30$$

Toby Mak
  • 16,827