The correct option is
B. mark-up.
Explanation of the Correct Answer
Mark-up is defined as the amount added to the cost price of goods to cover overhead and profit. It is typically expressed as a percentage of the cost of goods sold (COGS). The formula for calculating mark-up is:
[
\text{Mark-up} = \left( \frac{\text{Selling Price} - \text{Cost Price}}{\text{Cost Price}} \right) \times 100
]
This means that if you know the cost of an item and the selling price, you can determine the mark-up percentage. For example, if an item costs $50 and is sold for $75, the mark-up would be calculated as follows:
- Calculate the profit: Selling Price - Cost Price = $75 - $50 = $25
- Calculate the mark-up percentage:
[
\text{Mark-up} = \left( \frac{25}{50} \right) \times 100 = 50\%
]
This indicates that the profit made on the item is 50% of the cost price.
Why the Other Options Are Incorrect
A. Margin:
- Margin, often referred to as profit margin, is the difference between sales and the cost of goods sold, expressed as a percentage of sales. The formula for margin is:
[
\text{Margin} = \left( \frac{\text{Selling Price} - \text{Cost Price}}{\text{Selling Price}} \right) \times 100
]
Using the previous example, the margin would be:
[
\text{Margin} = \left( \frac{75 - 50}{75} \right) \times 100 = 33.33\%
]
Thus, margin is not expressed as a percentage of the cost of goods sold, making this option incorrect.
C. Gain Percent:
- Gain percent is a term that is not commonly used in standard accounting or commerce terminology. It generally refers to the profit made on an investment or sale, but it is not specifically defined as a percentage of the cost of goods sold. Therefore, this option is vague and not applicable in this context.
D. Gross Profit:
- Gross profit is the difference between sales revenue and the cost of goods sold. While it is a measure of profitability, it is not expressed as a percentage of the cost of goods sold. Instead, it is an absolute dollar amount. The formula for gross profit is:
[
\text{Gross Profit} = \text{Sales Revenue} - \text{Cost of Goods Sold}
]
Thus, while gross profit is related to the cost of goods sold, it does not fit the definition provided in the question.
Summary of Key Points
- Mark-up is the correct term for profit expressed as a percentage of the cost of goods sold.
- Margin is a percentage of sales, not cost, making it incorrect in this context.
- Gain percent is not a standard term in commerce and is vague.
- Gross profit is an absolute figure, not a percentage, and does not meet the criteria of the question.
By understanding these definitions and calculations, you can better grasp the concepts of profit measurement in commerce.