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 Post subject: GMAT Profit
PostPosted: Tue Jan 25, 2011 1:54 pm 

Joined: Tue Jan 25, 2011 1:51 pm
Posts: 1
I have a question regarding the sample question on this page
The question asks:
A trader has two kinds of wheat grains - one that he purchased for $20 per sack, and the other that he purchased for $12.5 per sack. How many sacks of the cheaper wheat should he mix in 50 sacks of the expensive wheat, so that the mixture yields a 33.33% profit when sold at $20 per sack?
(a) 20
(b) 25
(c) 50
(d) 100
(e) 200

Your answer is 100. i think that the answer should be 400. Your answer suggests that the profit margin is based on the cost of the goods sold and not on the sale price. $5 correlates with a 33% profit margin only at $15, which is the total cost of the items sold. A 33% profit based on the revenue, which is the economically correct way to calculate profit margin, would be $6.60. To then arrive at the number of bags needed at $12.50 to arrive at this profit margin level would be 400. Please tell me why I am wrong.
Thanks. Mike

 Post subject: Re: Is one of the Sample Questions Wrong
PostPosted: Wed Mar 02, 2011 9:50 am 
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Joined: Fri Apr 09, 2010 2:11 pm
Posts: 453
There is some peculiarity regarding the term "profit of __ %"

Just before recently the base for percentage was considered in only one way, "rate of profit", as in investment.
rate of profit = profit/costs

In recent years the the term "profit margin", as in accounting, became also widely-spread.
profit margin = profit/revenue

Math problems usually refer to the rate of profit (they look at the process as an investment).

If it is an accounting problem, then it more likely refers to profit margin (depends on the wording of the problem).

But as questions develop, we should be seeing clearer distinction between these two terms:
- either the base will be indicated, e.g. "profit of __% of the revenue"
- or the term will be used in full wording, e.g. "rate of profit is ___%".

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