Demystifying Percentage Calculations

[shan1234]

Need some help from you Mathematician gurus

I am looking at a cost model built by Finance and puzzelled by how a percentage is added.

If factor1 = 100 and x=18%, what are my options to add 18% to 100

Option-1: I would use the calculation 100+(100*18%) = 118
Option-2: The finance model uses the calculation 100/(1-18%) = 122

Can some one explain the two options and which one is right?

thanks

 

[West Man]

Assuming a cost of 100:
1 gives a selling price where 18% of the cost is profit
2 gives a selling price wheer 18% of the selling price is profit

 

[shan1234]

Assuming a cost of 100:
1 gives a selling price where 18% of the cost is profit
2 gives a selling price wheer 18% of the selling price is profit

sorry but I don't get this. probably my brain is not working this late in the day.

100 is the hourly rate for a resource.
18% is the tax on the person.

I am trying to calculate the total cost including hourly rate and tax of 18%. Should I use option 1 or 2

Many thanks!

 

[West Man]

Then option 1 is what you want.

 

[shan1234]

Thanks a lot. Really appreciate it.
I would be grateful if you could explain this in simple words so I get why I am choosing option-1. You are a star, thank you!

 

[West Man]

If 18% is the tax, then tax on 100 would be 100*.18. Added to the 100 is 118.

or viewed a bit differently The cost of the resource is 100% and the tax is 18%, so the total would be 100*118% or 1.18 *100

 

[shan1234]

That's great thanks. Why would option-2 not be selected? and what does option-2 mean in this context. Reason for the question is that the model I received from Finance is based on option-2

 

[West Man]

Option 2 is typically used when it is desired to compute a selling price when it is desired to have a profit that is 18% of the selling price