Future Business Leaders of America (FBLA) Business Calculations Practice Test

If a product sells for $500 with a profit margin of 25%, what is the cost price of the product?

1. A. $375

2. B. $500

3. C. $125

4. D. $625

The correct answer is: A. $375

To determine the cost price of a product based on its selling price and profit margin, we need to understand how profit margin is calculated. The profit margin indicates the percentage of the selling price that is profit. In this case, the product sells for $500, and the profit margin is 25%. First, we calculate the profit amount. Since the selling price is $500 and the profit margin is 25%, we find the profit by multiplying the selling price by the profit margin: \[ \text{Profit} = \text{Selling Price} \times \text{Profit Margin} \] \[ \text{Profit} = 500 \times 0.25 = 125 \] Now, we subtract the profit from the selling price to find the cost price: \[ \text{Cost Price} = \text{Selling Price} - \text{Profit} \] \[ \text{Cost Price} = 500 - 125 = 375 \] Thus, the cost price of the product is $375. This aligns with the understanding of how profit margins are applied to determine the relationship between selling price, cost price, and profit. The correct answer reflects the accurate calculation based on the provided profit margin and selling price.