Choice "C" is correct. The selling price is computed at $148.33. The fact pattern provides the basic relationships and requires that you determine selling price either algebraically or in a tabular form. Putting the fact pattern in a table, the provided information is used to compute the solution as follows:
| Data Provided
| | Computed
|
|---|
| Percent
| Amount
| | Percent
| | Amount
|
|---|
Selling price | 100% | ??? | | 100% | ↑ | 148.33 |
Costs | ??? | (89) | | 60% | | (89) |
Gross margin | 40% | ??? | | 40% | | |
The problem provides that the company has a 40% gross margin. By extension, costs are 60% of sales. If costs are $89, then selling price must be $148.33, as calculated below:
Selling price | ÷ Ratio of costs to sales |
| $89 ÷ 60% |
| $148.33 |
Choice "b" is incorrect. The proposed solution anticipates that selling price is 40 greater than costs ($89 x 1.4).
Choice "d" is incorrect. The proposed solution anticipates that selling price is 60 greater than costs ($89 x 1.6), instead of 60% of costs as computed above.
Choice "a" is incorrect. This proposed solution anticipates that selling price is a function of cost divided by gross margin percentage.
