What is this equation?

It is the expected cost of the house. A similar formula is: Cost/(1+TaxRate) For example if an object costs $109.50 including sales tax of 9.5%, the formula yields: $109.50 / (1 + .095) = $109.50 / 1.095 = $100.00, the price before tax.

In your case, for example, revenue of $390,000 with GM0% yields: $390,000 / 1.3 = $300,000 $300,000 costs plus 30% gross margin = $390,000.

margin they

That's what I thought at first, but the formula to find the cost of something based on its GM % is:

Revenue*(1-GM%)

Am I right or am I looking at this wrong? Good grief, all those years in school and a silly little formula gives me such a headache.

You are right and you are wrong. Gross margin in $Dollars is, rather obviously, the difference between revenue and COGS. You can compare that to EITHER the revenue OR the COGS, depending on your perspective and your purpose and the information available.

When you know your costs and can do relatively little to control them, you will probably use a target GM to set your prices (Revenue = Cost

• GM). Conversely, when you have less control of the selling price you can use the target GM to set your cost budget (Revenue - GM Cost). Same numbers, different perspective. But note that $GM compared to Revenue is not the same % as when compared to Cost. In the example, GM of ,000 is 30% of Costs, and just more than 23% of Revenue. Some people insist that the former is "markup" and the latter is "GM", but they're all the same numbers - use them in the way that makes the most sense for what you're trying to do.

"Joker" wrote ...

Thank you. This silly thing has been driving me crazy. You would think a CPA candidate could just whip this out no problem. I guess I better study more.

Mark-up and Margin. It all cam back to me last night. I used to be a cost accountant and I used the mark-up equation frequently. I even recall having discussions with the field guys on why the mark-up and margin did not match.