Markups and Markdowns; Insight into Perishables Chapter 8 Markups and Markdowns; Insight into Perishables McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Markups and Markdowns; Insight into Perishables #8 Markups and Markdowns; Insight into Perishables Learning Unit Objectives Markup Based on Cost (100%) LU8.1 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 Markups and Markdowns; Insight into Perishables Learning Unit Objectives Markup Based on Selling Price (100%) LU8.2 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 Markups and Markdowns; Insight into Perishables Learning Unit Objectives Markdowns and Perishables LU8.3 Calculate markdowns; compare markdowns and markups Price perishable items to cover spoilage loss

Terminology Cost - The price retailers pay to a manufacturer Selling Price - The price retailers charge customers 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 Selling price (S) = Cost (C) + Markup (M) $1,200 Computer $900 - Price paid to bring computer into store $300 - Dollars to cover expenses and profit

Markups Based on Cost (100%) Dollar markup is the portion Cost + Markup = Selling Price 100% 33% 133% Cost is 100% - the Base Percent markup on cost is the rate

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

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

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 = 1.40C 1.40 1.40 $25 = C M = S - C M = $35 - $25 M = $10

Markups Based on Selling Price (100%) Dollar ($) markup is the portion (P) Cost + Markup = Selling Price 75% 25% 100% Selling Price is 100% - the Base (B) Percent (%) markup on selling price is the rate (R)

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

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? S = C + M S = $150 + .60(S) -.60s - .60S .40S = $150 .40 .40 S = $375 M = S - C M = $375 - $150 M = $225

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

Conversion 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 Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost Percent markup on selling price 1- Percent markup on selling price .33 = .33 = .50 1-.33 .67

Equivalent Markup Percent markup on Percent markup on cost Selling Price (round to nearest tenth percent) 20 25.0 25 33.3 30 42.9 33 49.3 35 53.8 40 66.7 50 100.0

Selling price (original) Markdowns Markdown percent = Dollar markdown Selling price (original) Sears marked down a $50 tool set to $36. What are the dollar markdown and the markdown percent? $36 $50-$36 Markdown $14 $50 28%

Pricing Perishable Items S = C + M TS = TC + TM TS = $10 + .75($10) TS = $17.50 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? TC = 20lbs. x $.50 = $10 20 lbs. X .15 = 3lbs $17.50 = $1.03 17lbs. 20lbs. - 3lbs