Profit & Loss Question Answers

Profit, Loss and Discounts - CAT 2007

Question 4 the day : July 3, 2003
The question for the day is a sample practice problem in profit, loss, discounts, an Arithmetic Topic and the problem provides an understanding of the different terms such as Cost Price, List Price, Selling price and margins.

Question
Two merchants sell, each an article for Rs.1000. If Merchant A computes his profit on cost price, while Merchant B computes his profit on selling price, they end up making profits of 25% respectively. By how much is the profit made by Merchant B greater than that of Merchant A?

1. Rs.66.67
2. Rs.50
3. Rs.125
4. Rs.200

Correct Answer - Rs.50. Choice (2)

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Explanatory Answer

Merchant B computes his profit as a percentage of selling price. He makes a profit of 25% on selling price of Rs.1000. i.e. his profit = 25% of 1000 = Rs.250

Merchant A computes his profit as a percentage of cost price.
Therefore, when he makes a profit of 25% or 1/4^th of his cost price, then his profit expressed as a percentage of selling price = 1/(1+4) = 1/5^th or 20% of selling price.
So, Merchant A makes a profit of 20% of Rs.1000 = Rs.200.

Merchant B makes a profit of Rs.250 and Merchant A makes a profit of Rs.200
Hence, Merchant B makes Rs.50 more profit than Merchant A.