If I have a cost of $6.50 for an item and I need a CM of 21%, how do I calculate the price needed?

Question

 If I have a cost of $6.50 for an item and I need a CM of 21%, how do I calculate the price needed?

Answer 1

First method does not work. You must divide by .79 to get the correct answer.

A price of $7.86 leaves you short. The contribution margin at a price of $7.86 is only 16%.

Answer 2

CM= Contribution Margin; contribution margin is the result of Sales price less cost of product sold.

 

If you want to make 21% CM on your product which cost you 6.50, there are two methods :

1) In this case all you have to do is multiply 6.5x 1.21 to get a gross up of $7.86 which should be your price.

2) The second method is to divide 6.5 by .79 and it will yield $8.23. The .79 arrived at by subtracting 21% from 100%.

I prefer the second method because you can test it CM= P(8.23)-C(6.5) =1.73= 21%CM