a 50% profit margin means that the price is 2 times the cost.
So the cost:profit ratio is 1:1
If the cost of raw material is doubled, then the ratio becomes 1.25:1 = 5:4, with the profit being only 4/9 instead of 1/2.
Assume the shoe is sold at 50% profit margin (profit as % of sales). If the cost of raw material were to increase by 50%, what would the new profit margin be?
Cost of manufacturing a shoe:
Raw materials = 25%
Labor = 12.5%
Marketing & Advertising = 25%
Distribution = 25%
Miscellaneous = 12.5%
The answer is 44%. I was wondering how that was the answer I got 35%.
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