Lecture Practical business math procedures (11/e) - Chapter 8: Markups and markdowns: Perishables and breakeven analysis

Chapter 8 - Markups and markdowns: Perishables and breakeven analysis. In this chapter, the learning objectives are: Calculate dollar markup and percent markup on cost, calculate selling price when you know cost and percent markup on cost, calculate cost when dollar markup at percent markup on cost are known, calculate cost when you know the selling price and percent markup on cost,...

Chapter Eight

Markups and Markdowns:

Perishables and Breakeven

Analysis

LU 8-1: Markup Based on Cost (100%)

1. Calculate dollar markup and percent markup on cost

2. Calculate selling price when you know cost and percent markup on

cost

3. Calculate cost when dollar markup at percent markup on cost are

known

4. Calculate cost when you know the selling price and percent markup on

cost

Learning unit objectives

Learning unit objectives

LU 8-2: Markup Based on Selling Price (100%)

on selling price are known

on selling price are known

on selling price are known

selling price, and vice versa

Price perishable items to cover spoilage loss

LU 8-2: Markdowns and Perishables

Learning unit objectives

LU 8-4: Breakeven Analysis

Selling Price - The price retailers charge customers.

Cost - The price retailers pay to a manufacturer or supplier.

Markup, Margin, or Gross Profit - The difference between the cost of bringing

the goods into the store and the selling price

Operating Expenses or Overhead - The regular expenses of doing business,

such as rent, wages, utilities, etc

Net profit or Net Income - The profit remaining after subtracting the cost of

bringing the goods into the store and the operating expenses

Basic Selling Price Formula

Assume Gap plans to sell hooded fleece jackets for $23

that cost them $18.

Markups Based on Cost (100%)

Cost + Markup = Selling price 100% 27.78% 127.78%

Dollar markup

is the portion

Percent markup on cost is the rate

Cost is 100% -

the Base

Calculating Dollar Markup and

Percent Markup on Cost

Gap buys fleece jackets for $18 They plan to sell them for $23 What

is Gap’s markup? What is the percent markup on cost?

Dollar markup = Selling price Cost

Percent markup on cost = Dollar markup

Check Selling price = Cost + Markup

Cost (B) = Dollar markup

$5

$18 $ 5 = $23 $18

23 = 18 + 2778($18)

$23 = $18 + $5

= 27.78% or 2778

= $18

Calculating Selling Price When You Know Cost and

Percent Markup on Cost

Mel’s Furniture bought a lamp for $100 To make Mel’s desired profit,

he needs a 65% markup on cost What is Mel’s dollar markup? What

is his selling price?

S = C + M

S = $100 + 65($100)

S = $100 + $65

Calculating Cost When You Know Selling

Price and Percent Markup on Cost

Jill Sport, owner of Sports, Inc., sells tennis rackets for $50 To make

her desired profit, Jill needs a 40% markup on cost

What do the tennis rackets cost Jill? What is the dollar markup?

S (Selling Price) = C (Cost) + M (Markup) $50 = C + 40(C)

$50 = 1.40C 1.40 1.40 $35.71 = C

M = S - C

M = $50 - $35.71

M = $14.29

Calculate

the cost:

Calculate

the dollar

markup:

Markups Based on Selling Price (100%)

Cost + Markup = Selling price

78.26% + 21.74% = 100%

Dollar ($) markup is the portion (P)

Selling price is 100% - the base (B)

Percent (%) markup on selling price is the rate (R)

Calculating Dollar Markup and Percent Markup

on Selling Price

The cost to Gap for a hooded fleece jacket is $18; the store then

plans to sell them for $23 What is Gap’s dollar markup? What is

its percent markup on selling price?

Dollar markup = Selling price Cost

$ 5 = $23 $18

Percent markup on selling price = Dollar markup

Check

Selling price = Cost + Markup

23 = 18 + 2174($23)

$23 = $18 + $5 $5 =

$23

2174

Selling price = Dollar markup

Percent markup on SP

$23

Calculating Selling Price When You Know Cost

and Percent Markup on Selling Price

Mel’s Furniture bought a lamp for $100 To make Mel’s desired profit,

he needs a 65% markup on selling price What are Mel’s selling price

and dollar markup?

M = S C

M = $285.71 $100

M = $185.71

S = $100 + .65S

- 65S - 65S 35S = $100

35 35

S = $285.71

S (Selling price) = C (Cost) + M (Markup) Calculate

the selling

price:

Calculate

the dollar

Calculating Cost When You Know Selling

Price and Percent Markup on Selling Price

Jill Sport, owner of Sports, Inc., sells tennis rackets for $50 To make

her desired profit, Jill needs a 40% markup on selling price What is the dollar markup? What do the tennis rackets cost Jill?

S (Selling price) = C (Cost) + M (Markup)

$50 = C + 40($50)

$50 = C + $20

- 20 - $20

$30 = C

Dollar Markup

Formula for Converting Percent

Markup on Cost to Percent Markup on

Selling Price:

Percent markup on cost

1 + Percent markup on cost

.2778 = 21.74%

1 + 2778

Formula for Converting Percent Markup on Selling Price to Percent

Markup on Cost:

Percent markup on selling price

1 Percent markup on selling price

.2174 = 27.78%

1 2174

Markdowns

Sears marked down a $18.00 tool set to $10.80 What are the dollar

markdown and the markdown percent?

$18.00 $10.80 = $7.20 markdown

Selling price (original) $18.00

Markdown percent = Dollar markdown

Selling price (original) Dollar markup = Original selling price – New selling price

Example:

Pricing Perishable Items

Alvin’s vegetable stand grew 300 pounds of tomatoes He expects 5% of the tomatoes to become spoiled and not salable The tomatoes cost Alvin $.14 per pound and he wants a 60% markup on cost What price per pound should Alvin charge for the tomatoes?

TC (Total Cost) = 300 lb x $.14 = $42.00

TS (Total Sales) = TC + TM (Total Markup)

TS = $42 + 60($42)

TS = $67.20

300 lbs X 05 = 15 lbs

$67.20 = $.24

300lbs 15lbs

Calculating a Contribution Margin (CM)

Assume Jones Company produces pens that have a selling price (S) of

$2 and a variable cost (VC) of $.80 Calculate the contribution margin.

CM = $2,00 (S) $.80 (VC)

CM = $1.20

Contribution margin (CM) = Selling price (S) – Variable cost

(VC)

Example:

Calculating a Breakeven Point (BE)

Jones Company produces pens The company has a fixed cost

(FC) of $60,000 Each pen sells for $2.00 with a variable cost (VC)

of $.80 per pen

Breakeven point (BE) = Fixed costs (FC)

Contribution margin (CM)

$2.00 (S) - $.80 (VC) Example: