Profit margin, markup and contribution: guide and free practice

Margin, markup and contribution use related figures but different bases. Identify revenue, cost and fixed charges before calculating a percentage or break-even point.

Write both denominators

Profit margin is profit divided by revenue. Markup is profit divided by cost. If cost is 60 and selling price is 100, margin is 40% while markup is about 66.67%. A question asking for one cannot be answered with the other.

Recover a selling price

For a target margin m, selling price equals cost divided by one minus m, with m written as a decimal. Adding m percent to cost instead produces a markup. A target 20% margin on an 80-unit cost requires a 100-unit selling price.

Contribution pays fixed costs first

Contribution per unit equals selling price minus variable cost per unit. Total contribution less fixed costs gives profit in the simplified model used here. Break-even quantity equals fixed cost divided by contribution per unit, assuming contribution is positive.

Include discounts and losses

A discount changes revenue, not the original cost. Recalculate profit after the discounted selling price. If an exercise includes fees, include them in the stated cost model instead of assuming they disappear.

Check the result

A positive margin below 100% is expected when both revenue and cost are positive and revenue exceeds cost. A negative result means a loss under the model, not a calculation failure. These exercises teach business arithmetic using hypothetical figures, not financial forecasting.

Your first practice session

Profit equals selling revenue minus the stated costs. Margin uses revenue as denominator; markup uses cost. Ignore unstated tax, fees and accounting adjustments.

Try 10 questions with explanations

Worked examples

  1. 1. A service sells for $200 and costs $150 to deliver. What is profit margin?
    1. 20%
    2. 25%
    3. 30%
    4. 33.33%

    Reference: q-130d432b-75 · Report this question

    Show answer and solution

    Answer: B. 25%

    Profit is $50. Margin is 50/200 = 25%; dividing by cost would calculate markup.
  2. 2. A product costs $80 and sells for $100. What is markup on cost?
    1. 80%
    2. 20%
    3. 25%
    4. 30%

    Reference: q-46074ade-64 · Report this question

    Show answer and solution

    Answer: C. 25%

    Profit is $20. Markup is 20/80 = 25%.
  3. 3. An item costs $120. What selling price gives a 25% margin?
    1. $180
    2. $144
    3. $150
    4. $160

    Reference: q-99cdb22d-59 · Report this question

    Show answer and solution

    Answer: D. $160

    Cost is 75% of the target selling price. Divide 120 by 0.75 = $160.

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About this practice

These are independently written teaching questions. A practice score helps you review your answers; it is not a validated hiring prediction or an official employer score.