What is the definition of mark-up (return on costs)?

• A. A percentage of selling price added to the total cost.
• B. A method of allocating profit to customers.
• C. A measure of efficiency equal to profit divided by sales.
• D. A percentage of cost, added to the cost to reach the selling price.

Answer: (D)

Mark-up is the amount added to the cost to set the selling price, expressed as a percentage of the cost (often called return on costs). The correct definition says a percentage of cost added to the cost to reach the selling price. For example, with a cost of 80 and a mark-up of 25%, the selling price becomes 100. This is different from a margin, which is profit as a percentage of selling price, not cost. The other options describe either allocating profit to customers, or a profit-to-sales measure, or applying a percentage to the selling price rather than the cost.