Which of the following statements best defines markup?

• A. Markup is the amount added to the cost of goods sold to determine the selling price.
• B. Markup is the difference between net sales and gross sales.
• C. Markup is the reduction in price offered to customers for early payment.
• D. Markup is the total revenue from sales before any deductions.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the term 'markup' in the context of Financial Accounting. Markup refers to the amount added to the cost of goods sold (COGS) to determine the selling price of a product or service. It is a key concept in pricing strategies.
2. Step 2: Analyze the options provided in the problem. The correct definition of markup should align with the concept of adding an amount to the cost of goods sold to arrive at the selling price.
3. Step 3: Eliminate incorrect options by comparing them to the definition of markup. For example, 'Markup is the difference between net sales and gross sales' is incorrect because it does not relate to the cost of goods sold or selling price.
4. Step 4: Further eliminate options that describe unrelated concepts, such as 'Markup is the reduction in price offered to customers for early payment,' which refers to discounts, not markup.
5. Step 5: Confirm that the correct answer is 'Markup is the amount added to the cost of goods sold to determine the selling price,' as this definition accurately reflects the concept of markup in Financial Accounting.