1-1

1-2

Chapter 8Chapter 8

Markups and Markups and Markdowns; Insight Markdowns; Insight

into Perishablesinto Perishables

McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

1-3

• 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

Markups and Markdowns; Insight into Perishables#8#8Learning Unit Objectives

Markup Based on Cost (100%)LU8.1LU8.1

1-4

• Calculate dollar markup and percent markup on selling price

• Calculate selling price when dollar markup and percent markup on selling price are known

• Calculate selling price when cost and percent markup on selling price are known

• Calculate cost when selling price and percent markup on selling price are known

• Convert from percent markup on selling price to percent markup on cost and vice versa

Markups and Markdowns; Insight into Perishables#8#8Learning Unit ObjectivesMarkup Based on Selling Price (100%)

LU8.2LU8.2

1-5

• Calculate markdowns; compare markdowns and markups

• Price perishable items to cover spoilage loss

Markups and Markdowns; Insight into Perishables#8#8Learning Unit Objectives

Markdowns and PerishablesLU8.3LU8.3

1-6

Terminology

Selling Price - The price retailers charge customers

Cost - The price retailers pay to a manufacturer

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

1-7

Basic Selling Price Formula

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

$1,200Computer

$900 - Pricepaid to bring

computerinto store

$300 - Dollars to

cover expenses and

profit

1-8

Markups Based on Cost (100%)

Cost + Markup = Selling Price

100% 33% 133%

Cost is 100% - the Base

Dollar markup is the portion

Percent markup on

cost is the rate

1-9

Calculating Dollar Markup and Percent Markup on Cost

• Johnny buys Sunday’s newspaper for $1.00. He plans to sell them for $1.50. What is Johnny’s markup? What is his percent markup on cost?

Dollar Markup = Selling Price - Cost

$ .50 = $1.50 - $1.00

Percent Markup on Cost = Dollar Markup Cost$.50 = 50%$1.00

1-10

Calculating Selling Price When You Know Cost and Percent Markup on Cost

• Ray’s Appliances bought a refrigerator for $150. To make desired profit, he needs a 60% markup on cost. What is Ray’s dollar markup? What is his selling price?

S = C + MS = $150 + .60($150)S = $150 + $90S = $240 Dollar Markup

1-11

Calculating Cost When You Know Selling Price and Percent Markup on Cost

• Jane’s imported flower business sells floral arrangements for $35. To make her desired profit, Jane needs a 40% markup on cost. What do the flower arrangements cost Jane? What is the dollar markup?

S = C + M$35 = C + .40(C)$35 = 1.40C1.40 1.40$25 = C

M = S - CM = $35 - $25 M = $10

1-12

Markups Based on Selling Price (100%)

Cost + Markup = Selling Price

75% 25% 100%

Selling Price is 100% - the

Base (B)

Dollar ($) markup is the

portion (P)

Percent (%) markup on

selling price is the rate (R)

1-13

Calculating Dollar Markup and Percent on Selling Price

• Johnny buys Sunday’s newspaper for $1.00. He plans to sell them for $1.50. What is Johnny’s markup? What is his percent markup on selling price?

Dollar Markup = Selling Price - Cost

$.50 = $1.50 - $1.00

Percent Markup on Selling Price = Dollar Markup Selling Price$.50 = 33%$1.50

1-14

Calculating Selling Price When You Know Cost and Percent Markup on Selling Price

• Ray’s Appliances bought a refrigerator for $150. To make desired profit, he needs a 60% markup on selling price. What is Ray’s selling price and dollar markup?

M = S - CM = $375 - $150M = $225

S = C + MS = $150 + .60(S)-.60s - .60S .40S = $150.40 .40S = $375

1-15

Calculating Cost When You Know Selling Price and and Percent Markup on Selling Price

• Jane’s imported flower business sells floral arrangements for $35. To make her desired profit, Jane needs a 40% markup on selling price. What is the dollar markup? What do the flower arrangements cost Jane?

S = C + M$35 = C + .40($35)$35 = C + $14-14 - $14$21 = C

Dollar Markup

1-16

Conversion

Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost

Percent markup on selling price1- Percent markup on selling price

.33 = .33 = .50 1-.33 .67

Formula for Converting Percent Markup on Cost to Percent Markup on Selling Price

Percent markup on cost 1+ Percent markup on cost

.50 = .50 = .33 1+.50 1.50

1-17

Equivalent Markup

Percent markup on Percent markup on cost Selling Price (round to nearest tenth percent)

20 25.025 33.330 42.933 49.335 53.840 66.750 100.0

1-18

Markdowns

Sears marked down a $50 tool set to $36. What are the dollar

markdown and the markdown percent?

$36

$14$50

28%

$50-$36Markdown

Markdown percent = Dollar markdown Selling price (original)

1-19

Pricing Perishable Items

• Sue’s vegetable stand grew 20 pounds of tomatoes. Sue expects 15% of the tomatoes to become spoiled and not salable. The tomatoes cost Sue $.50 per pound. Sue wants a 75% markup on cost. What should Sue charge for each pound of tomatoes so she will make her profit?

S = C + MTS = TC + TMTS = $10 + .75($10)TS = $17.50

20 lbs. X .15 = 3lbs

$17.50 = $1.03 17lbs.

TC = 20lbs. x $.50 = $10

20lbs. - 3lbs