Profit percentage query?

[PaulG40]

Hi guys,

I'm hoping you can help with a little misunderstanding that my missus has with her work, as I can't work out why.

She's been told by her accounts dept that they are adding up their percentages up wrong for their 'handling fee' surcharge.
She, and others in her office, were adding a 15% surcharge to a service items for a hire contract, so £200 adding 15% equals £230.

But accounts have said, no, you must do it as £200 divided by 0.85 which equals £235.29!

Both to me are 15% but why do it the 0.85 way?

Only thing I can think of is that its a workaround to add more profit?
Is this really the correct way accounting wise? Seems strange to me.

[CaptainSlow]

No, they are incorrect. Try it assuming a 50% surcharge.

[xr287]

They either aren't great at maths or its a bit of a trick to extract more profit. A handling fee surcharge would be an extra 15% of whatever the original cost is but the way they are doing it is calculating 15% of the surcharge included price obviously 15% of a higher price will be more than 15% of the original price so a 15% surcharge becomes 17.65%

[Ultuous]

Yep - they're effectively calculating 15% margin rather than markup.. Either that's how it's supposed to be done (which seems a little strange) or someone's making the age-old mistake of using a formula they don't really understand!

[mrmr96]

Doing it the "x1.15" way means that the surcharge is 15% of the value before the charge.
Doing it the "/0.85" way means that the surcharge is 15% of the value including the charge.

[PaulG40]

Thanks for the info!

I reckon they are, like you guys are saying, calculating the surcharge as a percentage of the value including surcharge already. Doesn't surprise me, since her company are on a mad push for sales and profit at the mo.

Thanks guys!