How is mark up defined in financial accounting?

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Mark up in financial accounting refers to the additional amount added to the cost of a product in order to determine the selling price. This concept is essential for businesses to cover their costs and generate a profit. Essentially, mark up is calculated based on the cost, where a percentage is applied to arrive at the price at which the item will be sold to customers.

By defining mark up in this manner, businesses can establish prices that not only recover the expenses related to producing or acquiring a product but also contribute to profit margins. This practice forms one of the basic strategies in pricing theories and is crucial for maintaining financial health.

The other answers touch upon aspects of financial transactions but do not accurately capture what mark up specifically entails in terms of setting a selling price based on cost.

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