Business Math Chapter 6

CHAPTER 6 :CHAPTER 6 : MARK UP & MARK MARK UP & MARK

DOWNDOWN6.1 Mark Up6.1 Mark Up6.2 Conversion 6.2 Conversion of of Mark Up Mark Up PercentPercent6.3 Mark Down 6.3 Mark Down 6.4 Profit & Loss6.4 Profit & Loss

6.1 Mark Up6.1 Mark Up

An important principle in retail business is the proper pricingproper pricing of its merchandise. Wrong pricing may lead to small profit or small profit or heavy loss.heavy loss. The cost pricecost price is the original price of the original price of the merchandise paid by the retailer.merchandise paid by the retailer. The retailer must add an additional add an additional amountamount called the markup markup to its cost to cover its business and to provide a profit.cover its business and to provide a profit.

Mark up – Introduction


The sum of this cost and markupsum of this cost and markup is the retail (or selling) priceretail (or selling) price. In other words, markupmarkup (or gross profit or gross margin) is the difference in the the difference in the retail price and cost priceretail price and cost price;

R = C + MR = C + MR = retail priceC = cost priceM = markup or gross profit

Mark up – Definition


Markup is usually expressed as a percent.percent. It can be expressed as;

Mark up percent based on retail retail priceprice:

Mark up percent based on cost cost priceprice: %100%

C

MMc %100%

C

MMc

Mark up – Percent

%100% R

MMr %100%

R

MMr

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 priceii. Retail price.

EXAMPLE 1EXAMPLE 1

SolutionSolution

000,6000,5100

120priceretail RMRM

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

RR == CC ++ MM

?? == RM5000RM5000 ++ ??

120%C120%C == 100%C100%C ++ 20%C20%C

0001

00050006markup

RM

RMRM

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 priceii. Retail price.

EXAMPLE 1EXAMPLE 1

250,6000,580

100priceretail RMRM

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

RR == CC ++ MM

?? == RM5000RM5000 ++ ??

100%R100%R == 80%R80%R ++ 20%R20%R

2501

00052506markup

RM

RMRM

SolutionSolution

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.

EXAMPLE 1EXAMPLE 1

SolutionSolution

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?

EXAMPLE 1EXAMPLE 1

SolutionSolution

6.2 Conversion of 6.2 Conversion of Mark Up PercentMark Up Percent

Markup percent based on retail can be based on retail can be converted to markup percent based converted to markup percent based on coston cost and vice versa as follows.

Mark up – Conversion

cc MM %%100%1 cc MM %%100%1

Markup percent based on retail priceretail priceSince R = C + MR = C + M

c

cr M

MM

%1

%%

c

cr M

MM

%1

%%

rr MM %%1%100 rr MM %%1%100

Markup percent based on costcost pricepriceSince R = C + MR = C + M

r

rc M

MM

%1

%%

r

rc M

MM

%1

%%

1. The markup percent based on cost price of an item is 20%. What is its markup percent based on retail retail priceprice?

2. The markup percent based on retail price of an item is 15%. What is its markup percent based on cost cost priceprice?

EXAMPLE 2EXAMPLE 2

SolutionSolution

%67.16

%100%120

%20

%100%

retail

markupMr

1. From

RR == CC ++ MM

120%C120%C == 100%C100%C ++ 20%C20%C

OR

%67.16%201

%20%

%1

%%

r

c

cr

M

M

MM

This also be worked out by

using the markup equation

1. The markup percent based on cost price of an item is 20%. What is its markup percent based on retail retail priceprice?

2. The markup percent based on retail price of an item is 15%. What is its markup percent based on cost cost priceprice?

EXAMPLE 2EXAMPLE 2

SolutionSolution

2. From

RR == CC ++ MM

== ++

OR

This also be worked out by

using the markup equation

6.3 Mark Down6.3 Mark Down

Markdown is a decrease in the selling decrease in the selling price.price.It is the difference in the old retail price and the new retail price; that is

MD = OP – NP MD = OP – NP MD = mark downOP = old retail priceNP = new retail price

Mark down – Definition

6.3 Mark Down6.3 Mark Down

Prices sometimes are markdown due to many reasons:

to face stiff competitionto encourage purchases in bulkto dispose off old, damaged or obsolete stocks to close a line of merchandise.

The markdown percentmarkdown percent, %MD is based on old price, OP and is expressed as follows:

Mark down – Percent

%100% OP

MDMD %100%

OP

MDMD

The markdown percent on a TV set is 10%. If the new retail

price is RM900, find the old retail price.

EXAMPLE 3EXAMPLE 3

SolutionSolution

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 ovenb) the cost of the ovenc) the markup percent of the oven at the regular price

EXAMPLE 4EXAMPLE 4

SolutionSolution

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. Calculatea) the actual selling priceb) the list price

EXAMPLE 5EXAMPLE 5

SolutionSolution

6.4 PROFIT & 6.4 PROFIT & LOSSLOSS

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

6.4 PROFIT & 6.4 PROFIT & LOSSLOSS

If the retail price just covers the cost price retail price just covers the cost price and the operating expensesand the operating expenses, then it does not not make any profit nor incur any lossmake any profit nor incur any loss. This price is called the breakeven pricebreakeven price, that is; Breakeven price = cost price + operating Breakeven price = cost price + operating expensesexpensesThe earlier markup equation, now can be expressed as follows;Retail price = Cost + Net profit + Operating Retail price = Cost + Net profit + Operating expensesexpenses

OENPCR OENPCR OR

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, finda. the retail priceb. the gross profitc. the net profitd. the breakeven price

EXAMPLE 6EXAMPLE 6

SolutionSolution

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.

EXAMPLE 7EXAMPLE 7

SolutionSolution

PRACTICE 1PRACTICE 11. 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?

Business Math Chapter 6

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