Profit margin, markup and contribution: Practice 1

10 original teaching questions with answers and explanations.

Instructions for this set

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

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Practise with feedback Optional timed challenge

  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

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    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

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    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

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    Answer: D. $160

    Cost is 75% of the target selling price. Divide 120 by 0.75 = $160.
  4. 4. A product sells at $50 with variable cost of $32. What is contribution per unit?
    1. $18
    2. $32
    3. $82
    4. $16

    Reference: q-1d9a3625-81 · Report this question

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    Answer: A. $18

    Contribution is selling price minus variable cost: 50 minus 32 = $18.
  5. 5. Fixed costs are $7,200 and contribution is $24 per unit. What quantity breaks even?
    1. 280
    2. 300
    3. 320
    4. 240

    Reference: q-1a72e52c-84 · Report this question

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    Answer: B. 300

    Break-even quantity is 7,200/24 = 300 units.
  6. 6. An item normally sells for $150 and costs $90. It is discounted by 20%. What is profit per discounted sale?
    1. $18
    2. $24
    3. $30
    4. $60

    Reference: q-ae480415-108 · Report this question

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    Answer: C. $30

    Discounted revenue is 150 times 0.80 = $120. Subtract $90 cost to get $30 profit.
  7. 7. Revenue is $18,000 with a 30% margin. What is profit?
    1. $6,000
    2. $12,600
    3. $4,200
    4. $5,400

    Reference: q-795edf56-54 · Report this question

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    Answer: D. $5,400

    Profit is 30% of revenue: 18,000 times 0.30 = $5,400.
  8. 8. A product has a 50% markup on cost. What is its margin, rounded to two decimals?
    1. 33.33%
    2. 50.00%
    3. 66.67%
    4. 25.00%

    Reference: q-23cc8395-81 · Report this question

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    Answer: A. 33.33%

    For cost 100, price is 150 and profit 50. Margin is 50/150 = 33.33% approximately.
  9. 9. A business sells 250 units with $16 contribution each and $3,100 fixed costs. What is profit?
    1. $800
    2. $900
    3. $4,000
    4. $700

    Reference: q-9a3ce59b-94 · Report this question

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    Answer: B. $900

    Total contribution is 250 times 16 = $4,000. After fixed costs, profit is $900.
  10. 10. Revenue is $9,000 and total stated costs are $9,900. What is margin?
    1. 9.09%
    2. 10%
    3. -10%
    4. -9.09%

    Reference: q-1aa1d8fb-69 · Report this question

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    Answer: C. -10%

    Profit is -$900. Divide by $9,000 revenue to get a margin of -10%.

Review your method

Return to the profit margin, markup and contribution lesson and identify the reasoning step behind each mistake before repeating the set.

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