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Chapter6 140219121411 Phpapp01

Here are the solutions to the practice problems: 1. Old retail price = New retail price / (1 - Markdown percent) = RM250 / (1 - 20%) = RM250 / 0.8 = RM312.50 2. New retail price = Old retail price * (1 - Markdown percent) = RM40 * (1 - 20%) = RM40 * 0.8 = RM32 3. Using the conversion formula: Markup percent based on cost = Markup percent on retail / (1 + Markup percent on retail) = 29% / (1 + 29%) = 29% / 1.29 = 22.5% 4. Using the conversion formula:

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194 views

Chapter6 140219121411 Phpapp01

Here are the solutions to the practice problems: 1. Old retail price = New retail price / (1 - Markdown percent) = RM250 / (1 - 20%) = RM250 / 0.8 = RM312.50 2. New retail price = Old retail price * (1 - Markdown percent) = RM40 * (1 - 20%) = RM40 * 0.8 = RM32 3. Using the conversion formula: Markup percent based on cost = Markup percent on retail / (1 + Markup percent on retail) = 29% / (1 + 29%) = 29% / 1.29 = 22.5% 4. Using the conversion formula:

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You are on page 1/ 21

CHAPTER 6 :

MARK UP & MARK DOWN


6.1 Mark Up
6.2 Conversion of
Mark Up Percent
6.3 Mark Down
6.4 Profit & Loss
6.1 Mark Up
Mark up – Introduction
An important principle in retail business is the
proper pricing of its merchandise.
Wrong pricing may lead to small profit or heavy
loss.
The cost price is the original price of the
merchandise paid by the retailer.
The retailer must add an additional amount
called the markup to its cost to cover its
business and to provide a profit.
6.1 Mark Up
Mark up – Definition
The sum of this cost and markup is the retail
(or selling) price .
In other words, markup (or gross profit or gross
margin) is the difference in the retail price and
cost price;
price
R = C + M
R = retail price
C = cost price
M = markup or gross profit
6.1 Mark Up
Mark up – Percent
Markup is usually expressed as a percent.
It can be expressed as;
Mark up percent based on retail price:
price
M
%M r = × 100%
R
Mark up percent based on cost price:
price
M
%M c = × 100%
C
EXAMPLE 1
1. The cost price of an antique table is RM 5000. What is
the retail price & markup if the seller wants a 20%
markup based on
i. Cost price
ii. Retail price.

Solution

i. Based on Cost Price, we form a table:


R = C + M
? = RM5000 + ?
120%C = 100%C + 20%C
120 markup = RM 6 000 − RM 5 000
retail price = × RM 5,000 = RM 6,000
100 = RM1000
EXAMPLE 1
1. The cost price of an antique table is RM 5000. What is
the retail price & markup if the seller wants a 20%
markup based on
i. Cost price
ii. Retail price.

Solution

ii. Based on Retail Price, we form a table:


R = C + M
? = RM5000 + ?
100%R = 80%R + 20%R
100 markup = RM 6 250 − RM 5 000
retail price = × RM 5,000 = RM 6,250
80 = RM1250
EXAMPLE 1
2. Mariam’s Shop purchased 90 shirts at a cost of RM20
each. The shop expects that 10% of the shirts will be
sold at a reduced price of RM15 each. If the shop is to
maintain a 75% markup on cost on the entire
purchase, find the regular price of the shirts.

Solution
EXAMPLE 1
3. A retailer purchased 200 kg of cucumber at 50 cents
per kilogram. A 5% spoilage is expected. If he plans to
make a 40% markup based on overall cost, what is the
selling price of the cucumber?

Solution
6.2 Conversion of
Mark Up Percent
Mark up – Conversion
Markup percent based on retail can be
converted to markup percent based on
cost and vice versa as follows.
Markup percent based on %M c
%M r =
retail price 1 + %M c
Since R = C + M
1 + %M c = 100% + %M c
Markup percent based on %M r
%M c =
cost price 1 − %M r
Since R = C + M
100% = 1 − %M r + %M r
EXAMPLE 2
1. The markup percent based on cost price of an item is
20%. What is its markup percent based on retail price?
price
2. The markup percent based on retail price of an item is
15%. What is its markup percent based on cost price?
price

Solution

1. From %M r =
%M c This also be worked out by
OR
1 + %M c using the markup equation
20% R = C + M
%M r =
1 + 20% 120%C = 100%C + 20%C
= 16.67% markup
%M r = × 100%
retail
20%
= × 100%
120%
= 16.67%
EXAMPLE 2
1. The markup percent based on cost price of an item is
20%. What is its markup percent based on retail price?
price
2. The markup percent based on retail price of an item is
15%. What is its markup percent based on cost price?
price

Solution

2. From This also be worked out by


OR
using the markup equation
R = C + M
= +
6.3 Mark Down
Mark down – Definition
Markdown is a decrease in the selling
price.
It is the difference in the old retail price
and the new retail price; that is
MD = OP – NP
MD = mark down
OP = old retail price
NP = new retail price
6.3 Mark Down
Mark down – Percent
Prices sometimes are markdown due to
many reasons:
to face stiff competition
to encourage purchases in bulk
to dispose off old, damaged or obsolete
stocks
to close a line of merchandise.
The markdown percent,
percent %MD is based
on old price, OP and is expressed as
follows: MD
%MD = × 100%
OP
EXAMPLE 3
The markdown percent on a TV set is 10%. If the new retail
price is RM900, find the old retail price.

Solution
EXAMPLE 4
During a clearance sale, an appliance department marked
down a microwave oven by 12%, making the selling price
RM400. At this selling price, the department made a 30%
markup on the selling price. Determine:
a) the regular price of the oven
b) the cost of the oven
c) the markup percent of the oven at the regular price
Solution
EXAMPLE 5
A retailer wants to sell an item that cost RM200 at a
marked price less 15% discount that will give him a 28%
markup based on cost. Calculate
a) the actual selling price
b) the list price

Solution
6.4 PROFIT & LOSS
Not all businesses make money.
A business incurs operating expenses, OE
such as: rents, lighting, wages,
commissions, bonus and other operating
expenses.
The markup must be able to cover the
operating expenses.
If markup is greater than operating
expenses,
expenses net profit is achieved.
achieved
However if markup is less than operating
expenses,
expenses loss is incurred.
incurred
6.4 PROFIT & LOSS

If the retail price just covers the cost price


and the operating expenses,
expenses then it does
not make any profit nor incur any loss.
loss
This price is called the breakeven price,
price
that is;
Breakeven price = cost price +
operating expenses
The earlier markup equation, now can be
expressed as follows;
Retail price = Cost + Net profit + Operating
expenses OR
R = C + NP + OE
EXAMPLE 6
A retailer bought a radio for RM200. Buying expenses
amounted to RM20. Operating expenses incurred were
20% of the cost price. If the retailer made a 25% net profit
based on cost, find
a. the retail price
b. the gross profit
c. the net profit
d. the breakeven price

Solution
EXAMPLE 7
A dealer bought a hi-fi set for RM2000 less 10% and 5%.
He sold it at a discount of 20%. If the gross profit earned
by the dealer is 20% on the net retail price, find the list
price of the hi-fi set by him.

Solution
PRACTICE 1
1. The markdown percent for a camera is 20%. If the
new retail price is RM250, find the old retail price.
2. The markdown percent for a shirt is 20%. If the old
retail price was RM40, find the new retail price.
3. If the markup percent based on retail price is 29%,
what is its markup percent based on cost price?
4. The markup percent based on cost is 35%. What is
the markup percent based on selling price?
5. Suppose that furniture store sold a lamp for RM70,
making a gross profit of 40% on cost. Assuming that
the store’s operating expenses run to 30% of cost,
what is the percentage of the store’s operating
expenses related to this sale?

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