Assuming an anticipated profit of 25% profit on the selling price, a 5% price increase would mean how much % of the current sales if the same profit is to be retained?

I really dont know how to go about this one. Can somebody help?

Thanks

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- Aug 19th 2010, 07:48 PMslicksilverProfit - raising prices
Assuming an anticipated profit of 25% profit on the selling price, a 5% price increase would mean how much % of the current sales if the same profit is to be retained?

I really dont know how to go about this one. Can somebody help?

Thanks - Aug 19th 2010, 07:54 PMpickslides
Let selling price be $\displaystyle x$ then a 25% profit gives $\displaystyle 1.25\times x$ with a further 5% increase on that would be $\displaystyle 1.05\times 1.25\times x$ .

Is that what you mean? - Aug 19th 2010, 09:20 PMslicksilver
I'm selling a x units of a product for $100 each and my profit is $25 i.e. my cost price is $75. If I increase my selling price by 5% how much % of the current sales needs to be maintained if the same profit is to be retained?

Thanks - Aug 19th 2010, 09:54 PMjfontein
New selling price = $105, so if you want to maintain the same profit, the total turnover should be $100 again. you only need to sell $100/$105 * a = 0,9523 * a= 95,23...% * a

- Aug 19th 2010, 09:59 PMslicksilver
A guy told me a 5% increase means the same profit on 83.5% of the current sales. Im unable to figure out how he got 83.5%.

- Aug 19th 2010, 10:30 PMjfontein
There is a difference between "absolute profit" and "profit margin". My calculation shows how to maintain the same "profit margin".

sales quantity 100 100

price per produc €100 €105

cost per produ €75 €75

total turnover €10.000 €10.500

total costs €7.500 €7.500

total profit €2.500 €3.000

profit margin 25% 29%

To maintain €2.500 profit, you need to sell 83,3 products.

absolute_profit = quantity *( price_per_prod - cost_per_prod)

and therefore

quantity = absolute_profit / ( price_per_prod - cost_per_prod)

= 2.500 / (105 - 75)

= 83,33333

=> 83,333%

Include the increase %:

absolute_profit = quantity *( (1 + increase%) * price_per_prod - cost_per_prod)

quantity = absolute_profit / ( (1 + increase%) * price_per_prod - cost_per_prod)

So (e.g.) to maintain 2.500 profit

quantity = 2.500 / ((1 + 0,05) * 100 - 75)

= 2.500 / ((1,05) * 100 - 75)

= 2.500 / (105 - 75)

= 2.500 / 30

= 2.500 / 30

= 83,333 => 83,3%