GMAT Math : Calculating profit

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Example Questions

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Example Question #1 : Calculating Profit

Mark buys 1,000 shares of stock for the current stock price of $20 per share.  If the stock price goes up to $25 per share, by what percentage does Mark increase his money?

Possible Answers:

50%

125%

100%

20%

25%

Correct answer:

25%

Explanation:

Mark spends $20 * 1,000 shares = $20,000. When the stock price increases to $25/share, he makes ($25 – $20) * 1,000 shares = $5,000. 

$5,000 / $20,000 = \dpi{100} \small \frac{1}{4} = 25%

He does NOT increase his money by 125%, which would mean an additional $25,000, not $5,000.

Example Question #2 : Calculating Profit

Mary works at a clothing store.  She makes $13/hour and works 40 hours a week.  Working at the clothing store gives her a 25% discount on anything they sell.  If she buys a sweater that retails for $50 and a jacket that retails for $144, what is her net profit for the week?

Possible Answers:

Correct answer:

Explanation:

Mary makes $13/hour and works 40 hours.  So she makes

However, we need to subtract the cost of the items that she bought.  If the sweater retails for $50, Mary buys it for because of her 25% discount.  Similarly, she buys the jacket for .  So her net profit is

.

Example Question #3 : Calculating Profit

The profit equation for a certain manufacturing process is , where is the number of units.

How much money will the plant make/lose if it sells units?

Possible Answers:

Correct answer:

Explanation:

Example Question #4 : Calculating Profit

Company B produces toy trucks for a shopping mall at a cost of $7.00 each for the first 500 trucks and $5.00 for each additional truck.  If 600 trucks were produced by Company B and sold for $15.00 each, what was Company B’s gross profit?

Possible Answers:

\$4000

\$5000

\$14,000

\$9000

\$0

Correct answer:

\$5000

Explanation:

First of all, we need to know that

Gross\ Profit=Revenue-Total\ Cost.

There are 600 trucks produced. According to the question, the first 500 trucks cost $7.00 each. Therefore, the total cost of the first 500 trucks is \$7.00\cdot 500=\$3500.

The other 100 trucks cost $5.00 each for a cost of \$5.00\cdot 100=\$500.

Add these together to find the cost of the 600 trucks: \$3500+\$500=\$4000

The total profit is easier to calculate since the selling price doesn't change: \$15.00\cdot 600=\$9000

At this point we have both revenue and total cost, so the answer for gross profit is \$9000-\$4000=\$5000.

Example Question #5 : Calculating Profit

Abe is a big gambler.  He is equally likely to win, lose, or break even.  When he loses, his loss is .  When he wins, he either makes or with equal probability.  How much money does Abe win or lose on average?

Possible Answers:

Abe loses $100.

Abe breaks even.

Abe wins $83.

Abe wins $200.

Abe loses $83.

Correct answer:

Abe loses $83.

Explanation:

To find the average, multiply each expected profit or loss by its probability:

\dpi{100} \small average = \frac{1}{3}\times (-1000)+\frac{1}{3}\times 0 + \frac{1}{6}\times 500 + \frac{1}{6}\times 1000 \approx -\$ 83

Example Question #5 : Calculating Profit

A non-profit organization is selling shirts to raise money. They purchase 500 shirts at a cost of $5 per shirt. During the course of the month, they are only able to sell 388 shirts. They donate the extra shirts. If the  shirts sell for $13 each, how much does the organization earn/lose during this campaign?

Possible Answers:

$2,544

$3,594

$4,000

$3,104

$2,328

Correct answer:

$2,544

Explanation:

To calculate profit, we find the total revenue and subtract the total expense.

The total revenue is the amount of money made from selling 388 shirts:

The total expense is the amount of money spent on buying 500 shirts:

 

Example Question #6 : Calculating Profit

Find the number of units, , that a company must sell to break even if the profit equation is .

Possible Answers:

Correct answer:

Explanation:

Break even profit is . Plug this value into the equation to solve for the number of units:

Example Question #7 : Calculating Profit

Last year, a car dealer purchased four cars for $5,000 each, and then later in the year he bought eight more cars for $7,000 each.  If this year the car dealer sells the 12 cars for a combined total of $126,000, what is his net profit?

Possible Answers:

Correct answer:

Explanation:

Calculate the net profit by subtracting the cost of the cars from the gross profit:

 

 

Example Question #8 : Calculating Profit

It costs $15,000 a month to operate Acme Widgets, Inc, plus $0.25 for every widgets produced.  Each widget sells for $0.35.  If gross profit is measured by the total dollar amount of sales minus operating and production costs, how many widgets would Acme Widgets, Inc. have to sell to make a profit of $25,000?

Possible Answers:

375,000

25,000

600,000

550,000

400,000

Correct answer:

400,000

Explanation:

We need to turn the word problem into a mathematical equation, and solve.

The basic profit equation is:

Where G = gross profit, R = revenue, F = fixed or operating costs, and V = variable or production costs.

We know that we want our gross profit to be $25,000, so .

Now, R is revenue, the money that the company earns by selling its product.  The company earns $0.35 for every widget sold, so , where w = number of widgets sold.

F is the operating cost, which is $15,000.

 

V is the cost of producing the widgets, which is $0.25 per widget.

 

Plugging in our variables, we get:

The company would have to sell 400,000 widgets to make a profit of $25,000

Example Question #9 : Calculating Profit

Read the problem below:

The French Club wants to make and sell cookies in order to raise $500 for a field trip. The equipment they want to use costs $400 to rent and to operate, and the ingredients for the cookies cost 45 cents per cookie. The French Club wants to sell the cookies for $2 each. At this price, how many cookies will they need to sell in order to earn back the money they paid for the ingredients and the equipment rental and make a profit of $500?

If  is the number of cookies sold, then which of the following equations represents the cost function?

Possible Answers:

Correct answer:

Explanation:

Each cookie costs 45 cents, or $0.45, to make, so the price of the ingredients will be $0.45 times the number of cookies, or 

The other expense is a flat price of the rental of the equipment, $400. 

Add the expressions to get the cost function

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