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PRICING MATH

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

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PRICING MATH

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  1. PRICING MATH CHAPTER 27

  2. 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

  3. 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)

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

  5. 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

  6. 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.

  7. 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.

  8. 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. • 12.99 – 8.50 = 4.49 • 4.49 / 8.50 = .53 or 53% on retail.

  9. 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

  10. 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

  11. 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($) • Check your work. RP X MU(%) = MU($)

  12. 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)

  13. 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

  14. 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

  15. 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(%)

  16. 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(%)

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