ACA Financial Management Practice Exam 2025 - Free Financial Management Practice Questions and Study Guide

Markup is commonly expressed as a percentage of the cost price of goods. This approach allows businesses to determine how much they will add to the cost of a product to arrive at a selling price. By calculating markup based on the cost price, companies can ensure they cover their expenses and achieve desired profit levels.

For example, if a product costs $100 and a business applies a markup of 50%, the selling price would be calculated as $100 (cost) + $50 (markup) = $150 (selling price). This method is straightforward and essential for pricing strategies, helping businesses maintain profitability while considering the cost of goods sold.

In contrast, other expressions of markup, such as those based on total sales revenue or as a flat dollar amount, might not provide the clarity and consistency that percentage-based marking offers, particularly in varying cost scenarios. Thus, understanding markup as a percentage of the cost price is fundamental for effective financial management within a business.