Entrepreneurship and Small Business (ESB) V2 Certification Practice Exam

What formula represents how to calculate the selling price of a product?

1. (Cost + profit margin)

2. (Cost * desired profit margin) + cost

3. Cost - expenses

4. (Cost * quantity) / desired profit margin

The correct answer is: (Cost * desired profit margin) + cost

The formula that accurately represents how to calculate the selling price of a product is based on both the cost of the product and the desired profit margin. In this context, the correct answer clearly outlines that the selling price can be calculated by taking the cost and applying a specific profit margin to it. By multiplying the cost by the desired profit margin and then adding that amount back to the original cost, you effectively determine the selling price. It's important to understand that the profit margin is expressed as a percentage of the cost. This approach ensures that you cover not only the cost of the product but also meet your profit goals. This method provides a straightforward way to transparently calculate what the customer should pay based on the underlying costs and your profit objectives. The other options present alternative calculations that either do not accurately represent the selling price or misinterpret the relationships among cost, expenses, and profit. For instance, simply adding a profit margin to the cost without proper consideration of how the margin is calculated does not ensure that the desired profit is achieved, as in the first option. Similarly, subtracting expenses from cost does not address how to determine the selling price from a profit perspective, and calculating a selling price by dividing total cost by desired profit margin does not provide a clear