Baby's Notion and Lotion shop requires a minimum markup of 50% at retail on a new line of lotions. If Baby feels that the line of lotions should retail for $20 per lotion, which of the following is the maximum amount she should pay for each lotion she buys?
A. $12
B. $14
C. $15
D. $16.80
E. None of the above
Answer: (E) If Baby is retailing her lotions at $20 per lotion, and needs to achieve a 50% markup at retail, she cannot pay over $10 for each bottle of lotion that she purchases. (A), (B), (C), and (D) have costs that are too high for Baby to achieve her desired markup. Remember that Sales Price = Cost + Markup (SP = C + M). Therefore, $20 (Baby's Retail Price) = C + 50%($20). So, $20 = C + 10, and therefore C = $10. The maximum Baby can pay for each of the bottles of lotion is $10. Of course, less would provide for a greater markup.