PRICING MATH CHAPTER 27

Ch 27 Sec 1 – Calculating Prices What you’ll learn . . . How a firm’s net profit or loss is related to pricing How to calculate dollar and percentage markup based on cost or retail How to calculate markdown in dollars and how to determine sale price and maintained markup

CALCULATING PRICES A FIRM’S NET PROFIT OR LOSS IS RELATED TO PRICING. Gross Profit – the difference between sales revenue and the cost of goods sold. Net Profit – Gross profit minus expenses. Mark-up should be high enough to cover all expenses and have profit. (Profit and Loss Statement)

BASIC MARKUP CALCULATIONS Cost (C) + Markup = Retail Price (RP) Retail price – Cost = Markup Retail price – Markup = Cost

PRACTICE 1 A computer costs Computer World $800 and the markup is $600. What is the retail cost? $1400.00 An X-box game retails for $65.00 and its markup is $25.00. What is its cost? $40.00

PERCENTAGE MARKUP ON RETAIL Markup is usually expressed as a percentage amount. MU(%) Determine the dollar markup. RP – C = MU ($) Change $ markup to % markup. MU($)/RP = MU(%) on retail Change the decimal to a percentage by shifting decimal two places to the right.

PERCENTAGE MARKUP ON COST Determine dollar markup. RP – C = MU($) Change the dollar to percentage markup. MU($) / C = MU(%) on cost. Change the decimal to a percentage by shifting decimal two places to the right.

PRACTICE 2 The retail price of a bracelet is 12.99 and the cost is 8.50. What is the percentage markup based on cost price? Based on retail price? 12.99 – 8.50 = 4.49 4.49 / 12.99 = .35 or 35% on cost. 4.49 / 8.50 = .53 or 53% on retail.

COST METHOD OF PRICING Determine dollar markup on cost. C X MU (%) = MU($) Add the dollar markup to the cost to get the retail price. C + MU($) = RP

PRACTICE 3 Snowboards R Us pays $40 for their low end boards. They mark the boards up 30%. A. What is the retail price of the boards? B. How much is the mark up in dollars? C X MU(%) = MU($) C + MU($) = RP $40 X .30 = $12.00 $40.00 + $12.00 = $52.00. A. $52.00 B. $12.00

RETAIL METHOD OF PRICING Determine what percentage of the retail price is equal to cost. RP(%) – MU(%) = C(%) or 100(%) – MU(%) = C(%) Determine the retail price. C / % equivalent Calculate $ markup. RP – C = MU($) Check your work. RP X MU(%) = MU($)

PRACTICE 4 “Woolens Closet” pays $90 for a hand made sweater and sells the sweater with a 40 percent markup on the retail price. What is the retail price and the dollar amount of markup? 100 – 40 = 60 $90.00 / .60 = $150.00 (the retail price) $150.00 – $90.00 = $60.00 (the $ amount of markup)

MARKDOWNS To reduce the quantity of goods in stock. MD(%) percentage of markdown based on retail price. Determine the dollar markdown RP X MD (%) = MD($) Determine sale price (SP). RP – ($) + SP OR RP(%) – MD(%) =SP(%) RP X SP(%) =SP

PRACTICE 5 A suit retail sells for $345.00. The store is offering a 40 percent reduction sale. What is the sales price. 100 – 40 = 60 $345 X .60 = $207.00

MAINTAINED MARKUP The difference between an item’s final sale price and its cost. Calculate the new sale price. Determine maintained markup in dollars (MM$) by subtracting the cost from sale price. SP – C = MM($). Determine the MM(%) by dividing the MM$ by the sales price. MM($) / SP + MM(%)

PRACTICE 6 A Palm Pilot sells for $425 retail. It costs the store $215.00. A customer has a coupon for a 20 percent discount. What will the customer pay for the device? What is the maintained markup in dollars and in percentage? 100 – 20 =80 .80 X $425.00 = $340.00 customer’s price $340 - $215.00 = $172.00 MM($) $172 / $340 = .51 or 51% MM(%)