Florida General Contractor Practice Exam

To achieve a profit margin of 45% on sales of $200,000, what would the cost of goods sold need to be?

1. $90,000

2. $110,000

3. $130,000

4. $150,000

The correct answer is: $110,000

To determine the cost of goods sold (COGS) required to achieve a specific profit margin, it's essential to first understand the relationship between sales, cost of goods sold, and profit. The profit margin is expressed as a percentage of sales, indicating how much profit is made relative to sales revenue. In this scenario, a profit margin of 45% means that the profit is equal to 45% of the total sales revenue. If the total sales amount to $200,000, then the desired profit can be calculated as follows: \[ \text{Desired Profit} = \text{Sales} \times \text{Profit Margin} \] \[ \text{Desired Profit} = \$200,000 \times 0.45 = \$90,000 \] Now, to find the cost of goods sold, you subtract the desired profit from the total sales: \[ \text{COGS} = \text{Sales} - \text{Desired Profit} \] \[ \text{COGS} = \$200,000 - \$90,000 = \$110,000 \] Thus, to achieve a profit margin of 45% on sales of $200,000, the cost of goods sold must be $110,