WEEK 4

Markups and Markdowns

McGraw-Hill/Irwin Copyright 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Markups and Markdowns; Perishables
and Breakeven Analysis
Learning Unit Objectives
Markup Based on Cost (100%)

1. Calculate dollar markup and percent markup

on cost
2. Calculate selling price when you know cost
and percent markup on cost
3. Calculate cost when dollar markup at
percent markup on cost are known
8-2 4. Calculate cost when you know the selling
 Markups and Markdowns; Perishables
and Breakeven Analysis
Learning Unit Objectives
Markup Based on Selling Price (100%)
1. Calculate dollar markup and percent markup on selling
price
2. Calculate selling price when dollar markup and percent
markup on selling price are known
3. Calculate selling price when cost and percent markup
on selling price are known
4. Calculate cost when selling price and percent markup
on selling price are known
5. Convert from percent markup on cost to percent markup on
8-3 selling price and vice versa
 Markups and Markdowns; Perishables
and Breakeven Analysis
Learning Unit Objectives
Markdowns

1. Calculate markdowns; compare markdowns

and markups

8-4
 Terminology
Cost - The price retailers Selling Price - The price
pay to a manufacturer or retailers charge customers
supplier

Markup, margin, or gross Operating expenses or

profit - The difference between overhead - The regular
the cost of bringing the goods expenses of doing business
into the store and the selling such as rent, wages,
price
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

8-5
 Basic Selling Price Formula

Selling price (S) = Cost (C) + Markup (M)

$23 $18 - Price

Jean paid to bring $5 - Dollars
Jeans to
into store cover
operating
expenses and
make a profit

8-6
 Markups Based on Cost (100%)

In this topic, you need to remember two formula:

1.Selling price formula
2.Portion formula

We will using this formula to solve percent

markup situation based on cost.

8-7
 Markups Based on Cost (100%)

Percent markup on cost calculated with portion

formula.
Remember this:
a) Dollar markup is the PORTION
b) Cost is 100% - the BASE
c) Percent markup on cost is the RATE

8-8
 Markups Based on Cost (100%)

Situation 1: Calculating Dollar Markup and

percent Markup on Cost.
Example : Gap buys fleece jackets for $18.
They plans to sell them for $23. What is Gaps
markup? What is the percent markup on cost?
How to Solve it?
Remember selling price formula and portion
formula.
8-9
 Calculating Dollar Markup and
Percent Markup on Cost

Dollar Markup = Selling Price - Cost Selling price

$5 = $23 - $18 formula.

Percent Markup on Cost = Dollar Markup x100 Portion

Cost
$5 = 27.78% Formula.
$18
(find RATE)

Check: Selling Price = Cost + Markup

23 = 18 + .2778(18) Cost (B) = Dollar Markup
Percent markup on cost
$23 = $18 + $5
$5 = $18
.2778
8-10
 Markups Based on Cost (100%)

Situation 2 : Calculating selling price when you know

cost and percent markup on cost.

Example: Mels Furniture bought a lamp for $100. To

make Mels desired profit, he needs a 65% markup on
cost. What is Mels dollar markup? What is his
selling price?

How to Solve it?

Remember selling price formula and portion formula.
8-11
 Calculating Selling Price When You Know
Cost and Percent Markup on Cost
Mels Furniture bought
a lamp for $100.
To make Mels desired
profit, he needs a 65%
markup on cost. What is
Mels dollar markup?
What is his selling price?

S = C + M
S = $100 + .65($100)
S = $100 + $65
S = $165 Dollar Markup

8-12
 Markups Based on Cost (100%)

Situation 3 : Calculating cost when you know selling

price and percent markup on cost.

Example : Jill Sport, owner of Sports, Inc., sells tennis

rackets for $50. To make her desired profit, Jill needs
a 40% markup on cost. What do the tennis rackets
cost Jill? What is the dollar markup?
How to Solve it? AGAIN
Remember selling price formula and portion formula

8-13
 Calculating Cost When You Know Selling
Price and Percent Markup on Cost
Jill Sport, owner of Sports, Inc.,
sells tennis rackets for $50. To
make her desired profit, Jill needs a
40% markup on cost. What do the
tennis rackets cost Jill? What is
the dollar markup?

S = C + M
$50 = C + .40(C) M = S - C
$50 = 1.40C M = $50 - $35.71
1.40 1.40 M = $14.29
$35.71 = C

8-14
 For practice

1. Irene Westing bought a desk for $400 from an

office supply house. She plans to sell the desk
for $600. What is Irenes dollar markup? What
is her percent markup on cost?
2. Suki Komar bought dolls for her toy store that
cost $12 each. To make her desired profit, Suki
must mark up each doll 35% on cost. What is
the dollar markup? What is the selling price of
each doll?

8-15
 Answer

Practice 1:
Dollar markup = $200
Percent markup on cost = 50%

Practice 2:
Dollar markup = $4.20
Selling price = $16.20

8-16
 Markups Based on Selling Price (100%)

Same with previous topic, you also need to

remember two formula:
1.Selling price formula
2.Portion formula

We will using this formula to solve percent

markup situation based on selling.

8-17
 Markups Based on Selling Price (100%)

8-18
 Markups Based on Selling Price (100%)

Situation 1 : Calculating dollar markup and percent

markup on selling price.

Example: The cost to Gap for a hooded fleece jacket is

for $18; the store then plans to sell them for $23. What
is Gaps dollar markup? What is its percent markup
on selling price?

HOW TO SOLVE?
Remember selling price formula and portion formula.

8-19
Situation 1: Calculating Dollar Markup and Percent
Markup on Selling Price
The cost to Gap for a hooded
fleece jacket is for $18; the
Dollar Markup = Selling Price - Cost store then plans to sell them
for $23. What is Gaps dollar
$5 = $23 - $18
markup? What is its percent
markup on selling price?

Percent Markup on Selling Price = Dollar Markup x 100

Selling Price
$5 = 21.74%
$23

Check: Selling Price = Cost + Markup

Selling Price = Dollar Markup
23 = 18 + .2174($23) Percent markup on SP
$23 = $18 + $5
$5 = $23
.2174
8-20
 Situation 2: Calculating Selling Price When You
Know Cost and Percent Markup on Selling Price
Mels Furniture bought a lamp for
$100. To make desired profit, he
needs a 65% markup on selling
price. What are Mels selling
price and dollar markup?

S = C + M
S = $100 + .65(S)
M = S - C -.65s - .65S
M = $285.71 - $100 .35s = $100
M = $185.71 .35 .35
S = $285.71
8-21
Situation 3: Calculating Cost When You Know Selling
Price and Percent Markup on Selling Price

Jill Sport, owner of Sports, Inc.,

sells tennis rackets for $50. To
make her desired profit, Jill needs a
40% markup on selling price. What
is the dollar markup? What do the
tennis rackets cost Jill?

S = C + M
$50 = C + .40($50)
$50 = C + $20
-20 - $20 Dollar Markup
$30 = C

8-22
 For practice

1. Jay sells calculators. His competitor sells a new

calculator line for $14 each. Jay needs a 40% markup
on the selling price to make his desired profit, and he
must meet price competition. What is Jays dollar
markup? At what cost can Jay afford to bring these
calculators into the store?
2. Dan sells wrenches for $10 that cost $6. What is
Dans percent markup on cost? Round to the nearest
tenth percent. What is Dans percent markup on
selling price.

8-23
 Answer

Practice 1 :
Dollar markup = $5.60
Cost = $8.40

Practice 2:
Cost = 66.7%
Selling price = 40%

8-24
 Conversion

Formula for Converting Formula for Converting Percent

Percent Markup on Cost to Markup on Selling Price to
Percent Markup on Selling Percent Markup on Cost
Price

Percent markup on cost Percent markup on selling price

1+ Percent markup on cost 1- Percent markup on selling price

.2174 = 27.78%
.2778 = 21.74% 1-.2174
1+.2778

8-25
 MARKDOWN

Markdown reduction from the original selling

price caused by seasonal changes, special
promotion and so on.
Calculate markdown percent as follow :

Markdown percent = Dollar markdown

Selling price (original)

8-26
 Markdowns

Markdown percent = Dollar markdown

Selling price (original)

Sears marked down a $18 tool set

to $10.80. What are the dollar
markdown and the markdown
percent?
$10.80 $18-$10.80
$7.20 Markdown
$18.00
40%
8-27
 TURNOVER AND VALUATION OF
INVENTORY
Turnover - measure of the number of times inventory is
sold or used in a time period.
Determine average inventory
Calculate stock turnover
Uniform product codes (UPC)
Four major method used for inventory valuation:
a) Specific identification method
b) Weighted-average method
c) First-in first-out (FIFO) method
d) Last-in, first-out (LIFO) method

8-28
 Average Inventory

Month 1 + Month 2..+..

Number of months
Example :
Inventory at Mega sports
was $285,672 on April 1
and $ 198,560 on April
30. What was the
average inventory?

8-29
 Stock turnover

8-30
 Example

8-31
 Example

8-32
 Uniform Product Codes (UPC)

The black stripes that appear on the packaging

for most items sold in stores.
Each product and product size is assigned its
own code number.
UPC can help in keeping track of inventory.

8-33
 Weighted-average method

Involves finding the average cost of an item and

then multiplying the number of items remaining
by the average cost per item.

8-34
 Example:

8-35
 Solution

1) Find the TC all backpacks.

8-36
8-37
 First-in, first out (FIFO) method

These method of inventory valuation assumes a

natural flow of goods through the inventory.
The first good to arrive are the first good to be
sold, so the last item purchased are the item
remaining in inventory.

8-38
 Example

8-39
 Last-in, First-out (LIFO) method

These method of inventory valuation assumes a

flow of goods through the inventory that is just
opposite of the FIFO flow.
Means that, the goods remaining in inventory
are those goods that were first purchased.

8-40
 Example

8-41
 THAT ALL

THANKS FOR YOUR

ATTENTION
8-42