12.4 Markup and Markdown

1. 12.4 Markup and Markdown Calculate cost and selling price when markup is based on selling price Calculate the rate of markup based on cost Calculate markdown and selling price Lesson 12.4

2. Selling Price • Businesses have to decide what price to charge for an item. • The price must cover the cost of the item, all expenses, including overhead, and generate a profit. Lesson 12.4

3. Markup Based on Selling Price • One way businesses price items is to use markup pricing. • With markup pricing, an amount is added to the cost of the goods to cover all other expenses plus a profit. • This is known as the markup or margin. • The selling price is the price at which the item is actually sold. Lesson 12.4

4. Price Lines • Retailers often sell goods in price lines. • The different price lines are expected to appeal to the different needs of buyers. • For example, an auto supply store may stock three price lines of car batteries. • One price line sells for $79.99; another line sells for $69.99; a third line sells for $59.99. (continued on the next slide) Lesson 12.4

5. Price Lines (continued) • When batteries are bought by a retailer for a price line, such as $59.99, the selling price is already known. • The problem is to find the highest price the retailer can pay for the batteries and still get the markup it wants. • If the cost of the batteries is too high, the retailer will make too little profit in selling them. Lesson 12.4

6. Markup Based on Cost • While many businesses use the selling price to figure markup, others use the cost. • When the cost price is used, you find the rate of markup by dividing the markup by the cost. Rate of Markup = Markup ÷ Cost Lesson 12.4

7. Markdown • In some cases, retailers reduce prices by applying a markdown to their marked price, or original selling price. • The marked price is the price that is marked on the item. • The selling price is always the price the item actually sold for. Lesson 12.4

8. Rationale for Markdowns • A markdown may be taken on the marked price at the end of a season or on items that are not selling well. • Markdowns might also be done to attract customers to the store for a sale or to be more competitive. Lesson 12.4

9. Markdown Formulas • Markdown, which is also known as discount, is stated as a percentage of a marked price. Rate of Markdown × Marked Price = Markdown Marked Price – Markdown = Selling Price Lesson 12.4

10. 1. As the buyer for Rezden Electronics, you are buying a travel alarm clock for a line that sells at $11.98. What is the most that you can pay for the clock and maintain a markup of 45% of the selling price? 0.45 × $11.98 = $5.391, or $5.39 markup $11.98 – $5.39 = $6.59 cost Lesson 12.4

11. 3. You must buy binoculars for a line that sells for $64.89. What is the most that you can pay for the binoculars and make a markup of 34% on the selling price? 0.34 × $64.89 = $22.062, or $22.06 markup $64.89 – $22.06 = $42.83 cost Lesson 12.4

12. 4. A retailer paid $2.50 for a 25-foot measuring tape. What is the selling price of the measuring tape with a markup of 60% on selling price? 100% – 60% = 40% cost as a percent of selling price $2.50 ÷ 40% = $2.50 ÷ 0.4 = $6.25 selling price Lesson 12.4

13. 5. The cost price of a bag of rice is $1.10. What is the selling price of the rice if a storeowner wants a markup of 24% on selling price? 100% – 24% = 76% cost as a percent of selling price $1.10 ÷ 76% = $1.10 $1.10 ÷ 0.76 = $1.447, or $1.45 selling price $1.45 x .24 = .348 35 cents  1.45 - .35 = 1.10 Lesson 12.4

14. 7. Madison Village Hardware buys a line of faucets at $80 each, less 20% and 10%. The store sells them at $90. a. How much does the store’s markup each? b. What percent is this of the selling price? a. 80% × 90% = 0.8 × 0.9 = 0.72, or 72% invoice price as percent of list price 0.72 × $80 = $57.60 invoice price $90 – $57.60 = $32.40 markup amount b. $32.40 ÷ $90 = 0.36, or 36% markup percent Lesson 12.4

15. 8. The cost of a remote-control racer is $47.80. A retailer wants to sell the racer for $83.65. What rate of markup based on cost will the retailer use? $83.65 – $47.80 = $35.85 markup $35.85 ÷ $47.80 = 0.75, or 75% rate of markup Lesson 12.4

16. 11. Early shoppers who come to a store before 8:00 a.m. get a 15% discount on all clothing. a. For a jacket marked at $59, what discount will an early shopper get? b. What is the jacket’s selling price after the discount is taken? a. 0.15 × $59 = $8.85 early shopper discount b. $59 – $8.85 = $50.15 selling price Lesson 12.4

17. 12. On a special shopping day, a store’s charge account customers get an extra 20% off on purchases of household items. The price of blankets with a marked price of $35 will be reduced by a 15% discount taken at the register. a. What is the blanket’s reduced price, after the markdown? a. What is the blanket’s selling price to a charge account customer? a. 0.15 × $35 = $5.25 markdown $35 – $5.25 = $29.75 price after markdown Lesson 12.4

18. 12. On a special shopping day, a store’s charge account customers get an extra 20% off on purchases of household items. The price of blankets with a marked price of $35 will be reduced by a 15% discount taken at the register. a. What is the blanket’s reduced price, after the markdown? a. What is the blanket’s selling price to a charge account customer? b. 0.2 × $29.75 = $5.95 discount for charge account customers Lesson 12.4

19. 12. On a special shopping day, a store’s charge account customers get an extra 20% off on purchases of household items. The price of blankets with a marked price of $35 will be reduced by a 15% discount taken at the register. a. What is the blanket’s reduced price, after the markdown? a. What is the blanket’s selling price to a charge account customer? $29.75 – $5.95 = $23.80 selling price to charge customers Lesson 12.4

20. 14. Cronin Auto Parts bought a mechanic’s tool set for $175 each, less 40%. Cronin marked the tool set to sell at $200. At a sale, the tool set was sold for 20% off the marked price. a. What was the invoice price of the tool set? b. What was the sale price? c. On each set sold at the sale, what was the amount the store made as markup? d. The markup was equal to what percent of the selling price, rounded to the nearest percent? a. 0.4 × $175 = $70 trade discount $175 – $70 = $105 invoice price Lesson 12.4

21. 14. Cronin Auto Parts bought a mechanic’s tool set for $175 each, less 40%. Cronin marked the tool set to sell at $200. At a sale, the tool set was sold for 20% off the marked price. a. What was the invoice price of the tool set? b. What was the sale price? c. On each set sold at the sale, what was the amount the store made as markup? d. The markup was equal to what percent of the selling price, rounded to the nearest percent? b. $200 × 0.2 = $40 discount $200 – $40 = $160 sale price Lesson 12.4

22. 14. Cronin Auto Parts bought a mechanic’s tool set for $175 each, less 40%. Cronin marked the tool set to sell at $200. At a sale, the tool set was sold for 20% off the marked price. a. What was the invoice price of the tool set? b. What was the sale price? c. On each set sold at the sale, what was the amount the store made as markup? d. The markup was equal to what percent of the selling price, rounded to the nearest percent? c. $160 – $105 = $55 markup d. $55 ÷ $160 = 0.343, or 34% markup as a percent Lesson 12.4