How to Calculate Margin From Cost

by Carter McBride, studioD

Margin has many meanings in the business world. However, when considering cost, then margin is the amount between the selling price of an item and the cost of the item. The cost to produce the item is found internally in a company's cost and managerial accounting books. Calculating margin from cost assumes that cost is either a given or known through internal company documents. The selling price is the price the company sells the product for to an outside market.

Determine the selling price of the product. For example, Company A sells its widgets to an outside distributor for $5 a widget.

Determine the cost to produce the product. In our example, Company A determined it costs the company $2 to produce each widget.

Subtract the cost to produce the product from the selling price of the product. In our example, $5 minus $2 equals a $3 margin or a 60 percent margin.

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