Jordan Company has a normal markup of 40%.Its cost-to-sales ratio is:
A)71.4%
B)67.5%
C)60%
D)Cannot be calculated

Question

Quizplus · Accepted Answer

The cost-to-sales ratio can be calculated using the formula: Cost / Sales. If the markup is 40%, this means the cost represents 100% - 40% = 60% of the sales price. To find the cost-to-sales ratio, we divide the cost (60%) by the sales price (100%), which gives us 0.6 or 60%. However, to express this as a percentage of sales, we need to consider that the cost is actually 100% of the cost itself, so we look for what percentage the cost is of the final sales price. The correct calculation is: Cost = 100% / (100% + Markup%) = 100% / 140% = 71.4%. This reflects the percentage of sales that the cost represents, not the markup on cost.

Jordan Company Has a Normal Markup of 40