A distributor sells a product through an on-line store, whic

Question

A distributor sells a product through an on-line store, which take a commission of 20% of the price set by the distributor. The distributor obtains the product from a producer at the price of $15 per item. What is the price that the buyer observers on-line if the distributor wants to maintain a 20% profit on the cost of the item?

A. 18
B. 21.6
C. 22
D. 22.5
E. 27

A. 18
B. 21.6
C. 22
D. 22.5
E. 27

Bunuel · Accepted Answer

Producer price = $15;

The distributor wants to maintain a 20% profit on the cost of the item, thus he must get $15*1.2 = $18 after the store takes a commission of 20% of the final price --> (final price)*0.8 = $18 --> (final price) = $22.5.

Answer: D.

PareshGmat · Answer

Cost price to distributor = 15

Lets say he adds "x" to it for online display

Selling price on web display = (15+x)

Online merchant takes 20% commission; so balance =  80 * \frac{(15+x)}{100}  ......(1)

Distributor wants to earn 20% i.e 15 + 3 = 18 ........... (2)

Equating (1) & (2)

80 * \frac{(15+x)}{100} = 18

x = 7.5

Selling price should be 15 + 7.5 = 22.5 = Answer = D

rrsnathan · Answer

Cool solutions.

Another way to solve this:
Let Price set by the Distributor on Online store : S
So the Distributor need 20% profit on the producer cost of $15 = 18$

S=18+S*0.2
S-S*0.2=18
S*.8=18
S=22.5

Regards,
Rrsnathan.

Press Kudos it this helped

Takdir · Answer

the qn does not mention whether the commission is also part of the cost. its confusing.

Turchet · Answer

We know that margin is revenue over costs. The cost in the case will be the price that the buyer will see online. The costs will be the cost of the product itself ($15) and the margin that the online store gets (20% of the price), so:

$p = \frac{revenue}{costs}$

$1.2 = \frac{p}{15+0,2p} \rightarrow p = $22,5$

Hope it helps.

p = \frac{revenue}{costs}

1.2 = \frac{p}{15+0,2p} \rightarrow p = $22,5

Hope it helps.

shakun · Answer

Hi Bunuel, please mention in the question that 'cost' does not include the commission that needs to be paid by the distributor. Otherwise it is confusing.

TimeTraveller · Answer

It was my understanding that only profits and the respective costs can be added to the cost of the product at each stage, anything else must be subsumed within the maximum retail price of the product, so it is implied that the commission is inclusive of the displayed price.

Price including the commission =  15 + 0.2(15) = $18.

The e-seller takes commission on this  $18 , so his display price must be inclusive of his commission.

So we have,  $18 + commission =  100\%  of display price. Since the commission is  20\% , the  $18  corresponds to  80\%  of the display price, therefore the display price =  \frac{18}{0.8} = $22.5.  Ans - D.

JeffTargetTestPrep · Answer

Since it costs the distributor $15 per item and he wants to have a 20% profit, he needs to sell the product (if there is no commission) for:

15(1.2) = 18

However, since there is a commission of 20% of the price set by the distributor, we can let x = the price set by the distributor and create the following equation:

x - 0.2x = 18

0.8x = 18

x = 18/0.8 = 180/8 = 22.5

Answer: D

exc4libur · Answer

cost $15
net 20% $15 = $3
sale price = $15+3 = $18
final price x = $18+0.2x, 0.8x = 18, x = $22.5

Ans (D)

007saisurya · Answer

.8x-15/15 *100 = 20 
.8x as seller gives 20% away as commission
solve for x

bumpbot · Answer

Automated notice from GMAT Club BumpBot: 

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

 This post was generated automatically.

A distributor sells a product through an on-line store, whic

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Problem Solving (PS) Questions

A distributor sells a product through an on-line store, whic

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards