Unit 6.3 Notes Markdown

1. Unit 6.3 NotesMarkdown

2. What is a markdown? • When an item does not sell at its listed price, sometimes the price must be reduced. The markdown is the difference between the original selling price and the reduced selling price. Reduced price = Original price – Markdown

3. Part – Base – and Rate The markdown is always a part of the original selling price.

4. Example 1 – Finding Reduced Price • Strongman’s Sports Company marked down the price of a home gym by 30%. Find the reduced price if the original price was $2879. • The markdown is part of the original price. • The markdown is 30% of $2879. • P = 0.3 * $2879 • P = $863.70 • The reduced price = Original price – markdown • The reduced price = $2879 - $863.70 • The reduced price = $2015.30

5. Example 2 – Finding Reduced Price • A pair of ski boots were originally priced at $289.99. They were marked down 40%. Find the reduced price. • The markdown is part of the original price. • The markdown is 40% of $289.99. • P = 0.4 * $289.99 • P = $116.00 • The reduced price = Original price – markdown • The reduced price = $289.99 - $116.00 • The reduced price = $173.99

6. Example 3 – Finding Percent of Markdown • The total inventory of Sweet Scents Candles at a local store had a retail value of $785. The prices of the candles were marked down so that the they totaled $530. What is the percent of markdown on the original price? • Reduced price = Original price – Markdown • $530 = $785 – Markdown • Markdown = $255 • The markdown is part of the original price. • The markdown = Rate * The original price. • $255 = Rate * $785 • Rate = 32.5%

7. Example 4 – Finding percent of markdown • An old model lap top has a retail value of $1836. If it is sold for $459, find the percent of markdown on the original price. • Reduced price = Original price – Markdown • $1836 = $459 – Markdown • Markdown = $1377 • The markdown is part of the original price. • The markdown = Rate * The original price. • $1377 = Rate * $1836 • Rate = 75%

8. Example 5 – Finding the Original Price • Necessities for Newborns has a car seat which costs $63 after a 25% markdown from the original price. Find the original price. • The markdown is 25% of the original price. • That means, the reduced amount must be 75% of the original price. • Part = Rate * Base • Reduced Amount = Rate * Original Price • $63 = .75 * Original Price • Original Price = $84.

9. Example 6 – Finding the Original Price • Fine Fleece’s sells sweaters at a reduced price of $17.99 after a markdown of 40% from the original price. Find the original price. • The markdown is 40% of the original price. • That means, the reduced amount must be 60% of the original price. • Part = Rate * Base • Reduced Amount = Rate * Original Price • $17.99 = .60 * Original Price • Original Price = $29.98

10. Break-Even Point • The point at which the reduced price just covers cost plus overhead (operating expenses). Break-even point = Cost + Operating expenses

11. Operating Loss • An operating loss occurs when the reduced price is less than the break-even point. The operating loss is the difference between the break-even point and the reduced selling price. Operating loss = Break-even point – Reduced Selling Price

12. Absolute loss (Gross loss) • The result of a reduced price that is below the cost of the merchandise alone. The absolute (or gross) loss is the difference between the cost and the reduced selling price. Absolute loss = Cost – Reduced selling price

13. Example 7 – Profit or Loss • Appliance Depot paid $1600 for a 42-ince LCD HDTV. If the operating expenses are 30% of cost and the television sold for $2000. Find the amount of profit or loss. • Operating Expenses are 30% of the cost. • Operating Expenses = .30 * $1600 • Operating Expenses = $480. • Break-even point = Cost + Operating Expenses • Break-even point = 1600 + 480 = $2080 • Since the break-even point is $2080 and the selling price is $2000, there is a net loss of $80. • The $80 loss is an operating loss since the selling price is less than the break-even point but greater than the cost.

14. Example 8 – Profit or Loss • Co-line Electronics paid $480 for a flat-screen TV. If operating expenses are 35% of cost and the television is sold for $600, find the amount of the operating loss. • Operating Expenses are 35% of the cost. • Operating Expenses = .35 * $480 • Operating Expenses = $168. • Break-even point = Cost + Operating Expenses • Break-even point = $480 + 168 = $648 • Since the break-even point is $648 and the selling price is $600, there is a net loss of $48. • The $48 loss is an operating loss since the selling price is less than the break-even point but greater than the cost.

15. Example 9 – Operating and Absolute Loss • A small foosball table normally sells for $360 at Strongman’s Sports. However, the foosball table is marked down by 30%. If the cost of the table is $260, and the operating expenses are 20% of the cost, find the operating loss and absolute loss. • The operating expenses are .20 * 260 = $52 • The break-even point is $260 + 52 = $312. • The markdown amount = .30 * 360 = $108. • The reduced price = Original Price – Markdown • The reduced price = 360 – 108 = $252. • Operating loss = break even point – reduced price • Operating loss = 312 – 252 = 60 • Absolute loss = Reduced Price – Cost • Absolute loss = 260 – 252 = $8 absolute loss.