Entrepreneurship and Small Business (ESB) Certification 2026 – 400 Free Practice Questions to Pass the Exam

To determine the selling price of each sandal, the calculation involves adding together the labor and materials costs and then applying a markup percentage to establish a price that covers the costs and includes profit.

This method, represented by the formula (Labor + Materials) x Markup%, ensures that the total of direct costs (labor and materials) is appropriately reflected in the final selling price. By first summing the labor and materials, you arrive at the total cost of producing the sandal. The markup percentage is applied to this total cost, resulting in a price that accounts for not only the costs incurred but also a profit margin that the business aims to achieve.

The other options do not accurately reflect the correct approach for calculating the selling price. For instance, the second option, which multiplies only the labor by the markup percentage and adds the materials, neglects to appropriately price the total cost of production. The third option incorrectly suggests that materials and markup should be multiplied by labor, leading to a miscalculation. The last option divides total costs by markup percentage, which does not yield the correct selling price but rather a figure that doesn’t serve the intended purpose.