Markup as a Merchandising Tool

 It is the major tool used when pricing

merchandise. Markup serves as a guide in pricing
merchandise and in providing the desired
operating profit
 Markup is the amt added to the cost price in order
to establish the retail price.
 The calculation of markup on retail provides
retailers to plan prices, stock, and sales in retail
values.
 Markup
RETAIL RETAIL COST
-COST OR -MARKUP OR + MARKUP
-------------- --------------- --------------
= MARKUP = COST = RETAIL
Calculating markup% based on
retail
 When markup % is based on retail, retail
always equals 100.

 Markup % based on retail= markup

-------------- x 100
retail
Calculating markup% based on
retail
What is the markup % for a dress that costs
$40 and retails for $80?
 Markup % based on retail= markup

-------------- x 100
retail
= ($80-$40) / $80 x 100
= 50%
Calculating markup% based on
cost
 Markup based on cost price is some times
used by small independently owned stores.

 Markup % based on cost = markup

-------------- x 100
cost
Calculating markup% based on
cost
 A man’s suit retails for $210 and costs $120.
What is the markup% based on cost ?
 Markup % based on cost = markup
-------------- x 100
cost
= ($210-$120) / 120 x 100
= $90/$120 x 100
= 75%
Comparison of markup based on
cost and retail
 Compare the mark up % ‘s when based on
retail and on cost for a blouse that costs
$24 and retails for $40?
Based on retail Based on cost
-------------------------------------------------
16/40 = 40% 16/24 = 66.67%
Problems
1. Find the cost of the dress that retails for $185
and has a 55% markup?
2. Hand tooled belts for the men’s department cost
$180 a dozen. If a 47.5% markup is required
what unit retail would achieve this markup?
3. What retail price in a walnut watch set that costs
$2500 would provide a 58% markup?
4. Determine the markup% on a child’s hand
smocked dress that costs $45 and retails for
$110?
Problem
5. A buyer of men’s furnishings paid $168 per
dozen for jute belts. What unit retail will
provide a 52.25% markup?
Markup % on a group of items
 To compute the markup % on an entire
order(merchandise with varying cost and/or
retail values), determine the total cost and
the total retail , then subtract to determine
total markup dollars.
 Example
 Find the markup % on the following order.
Quantity $ cost $ retail
-----------------------------------------------------------
14 skirts 20 each 45each
25 blouses 18 each 40 each
10 belts 16 each 30 each
Find total cost and total retail
Total cost = $890
Total retail = $1,930
Find total markup amt 1930-890 =$1,040
Markup% = $markup/ $retail x 100
=1040/1930 x 100
Problems
 Find the markup % on this order which a buyer
purchased for sale:
100 hand towels costing $22.80/dozen to sell at
$3.50 each.
9 2/3dozen washcloths costing $1.20 each to sell
at $2.10each.
85 bath towels costing $4.25 each to sell at $8.00
each
2 ¼ dozen beach towels costing $5.50 each to sell
at $10.98 each.
Problems
 The buyer needs a group of t-shirts for a
special sale he buys 40 dozen at
$84/dozen, 20 dozen at $96/dozen and
15dozen at $120/dozen. If he marks them
all at a sale price of $18.00 each, what
markup % is realized on the merchandise?
Initial Markup
 The first price placed on the merchandise for resale is its
Original Retail. The price received when it sells which
may be different , is its final selling price.
 Initial Markup – is the difference between the billed cost
(where inward freight charges are known in advance,they
are added to the billed cost before calculating initial
markup) and the first retail price placed on a given item,or
a lot of goods.This figure can be planned in advance.
Original retail price = $12,000
(minus) Billed cost = $ 5,500
---------------------------------------------------------
Initial $markup = $ 6,500
INITIAL MU% =6,500/12,000 X 100
= 54.2%
 INITIAL MARKUP
 The markup that is placed on the merchandise as
it is received into the store is initial markup.
 However this is not to imply that the markup
placed on the merchandise when it first enters the
store will be same markup achieved when the
goods are sold.the retailer quickly becomes aware
that the first markup placed on the is hoped for.
That markup ‘hoped for ‘ is called initial mark
up. The markup actually achieved is called
‘maintained markup’
 Initial MU should be large enough to to cover
expenses and reductions to provide a profit. A
loss will occur if the initial markup does not
cover expenses and reductions.
Components of initial markup
1. Operating expense.
2. The anticipated reductions in the retail value of
the inventory—
a. markdowns
b.expected inventory shortages.
c.sales discounts to employees.
6. A satisfactory return—profit
7. Alteration costs- installation of carpeting,hemline
of men’s trouser, repair of damaged inventory.
This increases the value of the retail price
8. Cash discount represent a reduction in the cost of
merchandise.
Initial Markup%
 Initial Markup % =
Expenses + Profit +Reductions
+Alterations-Cash discount
-------------------------------------------x 100
Net sales + Reductions
Example 1
 Determine the necessary initial markup for a dept
having these planned figures.
 Net sales $100,000
 Expenses 40,000
 Reductions 10,000
 Alteration cost 900
 Cash discount 750
 Profit 5,000
Solution1
Ini MU%= exp+prof+Redu+Alter+cd
------------------------------------x100
net sales + reductions
40,000 + 5,000 + 10,000 +900 – 750
= -------------------------------------------------
100,000 + 10,000
55,150
= ---------- = 50.14%
110,000
Example 2
 Calculate the initial markup % that will enable
the dept to achieve a 9% profit.
net sales $220,000
markdowns 4%
employee discounts 2,100
shortages 1,900
expenses 95,000
profit 9%
Cash discount 5,400
Alteration costs 2,600
 First determine the markdown and profit dollars:
markdowns = 4% of net sales = $8,800
profit = 9% of net sales = $19,800
reductions = Employee discounts +markdowns
+shortage
=$2,100 +$8,800 +$ 1,900
=$11,800
Initial MU% exp+prof+Redu+alte-cd
= --------------------------------x 100
Net sales + reductions
95,000 +19,800 +11,800 +2,600 –5,400
=--------------------------------------------------- x100
220,000 + 11,800
= 124,800 / 232,800 x 100
= 53.61%
Problem 1
3. What should be the initial markup% in a dept
having these planned figures?
net sales $420,000
expenses 38%
markdowns 8,500
alteration costs 950
shortages 2,500
cash discount 1,600
employee discounts 1,900
profit 8%
Problem 2
1. Determine what initial markup % will be
required to achieve a 4.25% profit.
expenses 42.0%
markdowns 2.8
alteration costs 0.2
shortages 1.0
cash discount 0.3
employee discounts 0.5
Maintained Markup
 It is the final markup obtained by a retail
store when the merchandise is sold. It is
based on actual sale of goods rather than
on planned sales.
 It is the difference between gross cost of
goods sold and the actual retail price
obtained(net sales).
 Maintained markup
 Maintained markup $ = net sales minus gross
cost of goods sold

 Maintained markup% = maintained markup$

------------------------------ x 100
net sales
Determine
Net sales
the maintained MU%
$250,000
Cost of merchandise sold:
Opening inventory $35,000
Gross purchases $155,000
- Less returns to vendors - 7,500
-----------
Net purchases $147,500
Freight inward + 3,500
----------
Total merchandise handled $186,000
Closing inventory - 41,000
----------
Gross cost of merchandise sold $145,000
Cash discount earned - 8,000
----------
Net cost of merchandise sold $137,000
Net alteration/workroom costs + 2,500
----------
Total cost of merchandise sold -139,500
-------------
Gross margin $110,500
 Solution 1
 Maintained markup $ = net sales – gross cost
of merchandise sold
= $ 250,000 - $ 145,000
=$105,000
Maintained markup% = maintained MU $
---------------------- x100
net sales
= $ 105,000 / $ 250,000 x 100
= 42%
Maintained markup
 Retail reductions (markdowns, shortages,
and discounts) reduce the value that can
actually be achieved or hope to achieve.
 Maintained markup is based on results and
is usually figured on the activity of an
entire classification, dept or the store for
a given period of time rather than on an
individual purchase or few items.
Maintained markup
 It is calculated whenever an operating
statement(p&l) is prepared and is reported
as a % of net sales and does not reflect
deductions for cash discounts and
workroom costs.
 Maintained markup is more meaningful %
than initial markup because it is an
accurate reflection of actual business.
Maintained MU and Gross
Margin
 Maintained markup and gross margin both
represent the markup achieved the merchandise is
sold. Both % are based on the net sales figure
rather than on original prices.
 Maintained MU differs from Gross Margin in that
gross margin takes into consideration cash
discounts and alteration/workroom costs.
How to calculate gross margin
with maintained markup
Gross Margin $ = Net sales – Total cost of
merchandise sold

Gross Margin % = Gross Margin $

------------------- x 100
net sales
Net sales $250,000
Cost of merchandise sold:
Opening inventory $35,000
Gross purchases $155,000
- Less returns to vendors - 7,500
-----------
Net purchases $147,500
Freight inward + 3,500
----------
Total merchandise handled $186,000
Closing inventory - 41,000
----------
Gross cost of merchandise sold $145,000
Cash discount earned - 8,000
----------
Net cost of merchandise sold $137,000
Net alteration/workroom costs + 2,500
----------
Total cost of merchandise sold -139,500
-------------
Gross margin $110,500
Using the above example to
calculate Gross Margin
Gross Margin $ = Net sales – Total cost of
merchandise sold
=$250,000 - $139,500
=$110,500

Gross Margin % = Gross Margin $

------------------- x 100
net sales
=$ 110,000 / $ 250,000 x 100
=44.2%
Problem 1- Calculate Maintained
MU% and GM% for a Dept
 Net sales $320,000
 Opening inventory 85,000
 Closing inventory 105,800
 Net purchases 185,000
 Freight inward 3,800
 Cash discount 5,400
 Alteration costs 2,100
Cumulative Markup
 Cumulative markup is the average markup
resulting from the beginning inventory and the
purchases received during a specified period.
Cumulative markup is calculated from season to
date basis. It is an average figure because it is the
markup on merchandise that has accumulated
over a period of time .
 Total value of the goods handled is calculated by
adding beginning inventory and net purchases
throughout the period.total merchandise handled
must be cal at retail and at cost in order to find
cumulative MU%
Cumulative Markup
 Cumulative markup%
= $ Cumulative markup
----------------------------- x 100
$ cumulative retail
Example 1
 The shoe dept showed an opening
inventory of $80,000 at retail with a
markup of 48%. During the month,
purchases were received in the amt of
$30,000 at cost that were marked up 52%.
Find the cumulative markup% for the dept.
 Opening Purchases Total Merchandise
Inventory Handled
------------------------------------------------------------------
Retail $80,000 $62,500(a) $142,500(c)
Cost $ 41,600(b) $30,000 $71,600(d)
Markup% 48% 52% 49.75%(e)
g) Find the retail value of purchases = $62,500
h) Find the cost value for the opening inventory
= $41,600
i) Find the total value of retail value of all goods handled
= $142,500
k) Find the total cost value of goods handled = $71,600
l) Markup% on the total goods handled.
$Markup = $ 142,500 - $71,600 = $ 70,900
Problem 1
 A sporting goods store had an opening
inventory of $42,000 at cost and $95,000
at retail. Purchases during the month
totaled $64,000 at cost and $ 138,000 at
retail. Determine the cumulative markup%
Average Markup
 Buyers must be able to determine the
markup % needed on the balance of
purchases in order to achieve the planned
markup goal(an Average).
Example
 A buyer for a children`s dept needs
$12,000 worth of merchandise at retail for
the month. She has already purchased 200
dresses that cost $18.00 each and will retail
for $30.00 each.what markup% must she
obtain on the remaining purchases in order
to average a 54% markup for the month?

 First ask what are you trying to find?

 Markup% on the balance.
 % Total needs Purchases Balance
---------------------------------------------------------------------------
Retail 100% $12000 200 at $30
(b) $6000 (d) $6000
Cost 46% (a) $5,520 200 at $18
(c) $3600 (e) $1920
Markup 54% (f) 4080
(h) Find total needs at cost = $5520
(i) Find retail value of purchase = $6000
(j) Find cost value of purchase = $3600
(k) Find the balance retail = $6000
(l) Find the balance cost =$ 1920
(m) Find the markup % needed on the balance =
retail balance – cost balance / retail balance x 100
Problem1
 A sportswear buyer needs to average a
48% markup. He needs 120 skirts to retail
at $21.00 each and 80 jackets to retail at
$38.00 each. If he pays $20.00 for each
jacket, how much can he pay for each skirt
in order to achieve his planned markup %?
Problem 2
 A buyer plans to purchase 300 pairs of
slacks for an Anniversary sale to retail for
$26.00 each. The buyer has already placed
an order for 170 pairs at $12.00 each
(cost). What is the most he can pay for
each remaining pair of slacks if he is to
achieve the dept’s markup goal of 52%?
Problem 3
 A buyer for the men’s dept purchased a
group of shirts that consisted of 10 shirts at
$11.00 each; 20 shirts at $12.00 each; and
12 shirts at $14.00 each. He plans to sell all
the shirts at the same price. What unit retail
price will result in a 58% markup.