Question

If the unit selling price is $2.50 and the unit cost is $1.00, what action is need to maintain the gross margin percentage when unit cost increases $0.25?*

Answer 1

In order to keep a constant gross margin percentage, you would need to raise the price of the product to $3.13.

In order to find this you must first calculate out the current gross margin percentage. You can find this using the equation below. 

$\frac{Cost}{Price}$ = Gross Margin

$\frac{1.00}{2.50}$ = Gross Margin

40% = Gross Margin

Now we need to use the same equation with a new cost to find price. 

$\frac{Cost}{Price}$ = Gross Margin

$\frac{1.25}{Price}$ = 40%

1.25/.40 = Price

3.13 = Price

Answer 2

Let

G--------> the gross margin percentage

P-------> unit selling price

C------> the unit cost

we know that

The gross margin percentage is equal to

$G=\frac{C}{P} *100$

in this problem

P=$$2.50$

C=$$1.00$

so

$G=\frac{1.00}{2.50} *100$

$G=40$%

If the unit cost increases $$0.25$

the new unit cost is equal to

$C=1.00+0.25\\ C=1.25$

Find the new value of the unit selling price for

C=$$1.25$

G=$40$%

$G=\frac{C}{P} *100\\ \\ P=\frac{C}{G} *100\\ \\ P=\frac{1.25}{40} *100\\ \\ P=3.125$

therefore

the answer is

Increases the unit selling price to $$3.125$