Gross margin vs. mark-up distinction

Steps:

• Gross margin = (selling price - cost) / selling price = 1/3, with cost = $120.
• Let SP = selling price; then (SP - 120) / SP = 1/3.
• SP - 120 = (1/3)SP; rearrange to (2/3)SP = 120.
• SP = 120 × (3/2) = $180; mark-up = SP - cost = 180 - 120 =$60.

Why B is correct:

• Mark-up is selling price minus cost price; with one-third gross margin, SP = cost × (3/2) = $180, so mark-up =$60.

Why the others are wrong:

• A: Equals one-third of cost ($40), which assumes mark-up on cost equals gross margin (incorrect).
• C: Equals the selling price ($180), not the mark-up.
• D: Equals 1.5 × cost ($180), confusing mark-up with SP.

Final answer: B