BUSINESS MATHEMATICS (GRADE 11, ABM)

On the above example, the product has a cost of ₱75 and it had a mark-up of ₱25 which
Buying and Selling (Single Trade Discount and Discount Series) resulted in a selling price of ₱100.
To determine the Gross Margin Ratio, consider this formula:
Mark-Up vs.Margin Gross Margin Ratio = Margin ÷ Selling Price
In business, there are two major categories for expenses: = 25 ÷ 100
1. Cost of Goods - These are the direct costs of producing the goods sold by a company. It = 0.25 or 25%
includes direct materials and direct labor used to create the goods. For manufacturers,
these would be the cost of production while to a wholesaler/retailer it is the price paid to a Mark-up Percentage = Mark-up ÷ Cost
manufacturer. = 25 ÷ 75
2. Operating Expense (or overhead expenses) - It includes all expenses related to the = 0.3333 or 33.33%
operation of the business such as salaries, rent, utilities, repair and maintenance,
advertising, commission, etc. *Mark-Up Percentage of 33.33% is HIGHER than Gross Margin Ratio of 25%
Gross Margin is a way to measure the efficiency of a company using its raw materials and
Cost is the price a merchandising business pays for a product. For a manufacturer, it labor in production process.
denotes the amount of money spend for the creation of the product.
Single Trade Discounts and Discount Series
Selling Price is the price at which a product is sold to the customer.
Trade discounts are a reduction from the list price, which is normally offered between
Mark-up is the difference between Selling Price and Cost. It is added to cost to cover manufacturer and wholesaler or between wholesaler and retailer. It is important to note
operating expenses and ultimately, to provide profit to the owner. that there is a line of other people, called middlemen, who are involved in bringing the
Mark-Up = Selling Price - Cost Price products to the final consumer. These people expect their share of profit also. Thus,
manufacturers/suppliers give special discounts.
Margin refers to the gross profit margin for a specific sale, which is revenue minus the cost
of goods sold, but the difference is shown as a percentage of revenue. List Price is the suggested price of an item/product set by the manufacturer or supplier.
Margin (or Gross Margin) = Sales - Cost of Goods Sold Net Price is the amount a business pays for the product/merchandise after the discount has
been deducted.
To Illustrate:
A company sells a product with a cost of ₱75 for a selling price of ₱100. In this example, the Here are the formulas used in solving trade discount problems:
Trade Discount = List Price x Trade Discount Rate
margin is ₱20.
Trade Discount Rate = Trade DiscountList Price
Solution : List Price = Invoice PriceRate of Invoice Price
Margin = Sales - Cost of Goods Sold Mark-Up = Selling Price - Cost Net Price = List price – Trade Discount
Margin = ₱100 – 75 Mark-Up = ₱100 - 75
Example 1:
Margin = ₱25 Mark-Up = ₱25
Empress was offered a pair of earrings worth ₱30,000 to be paid on an installment basis,
Important: within one year. It was agreed that, if she pays in cash, she will be given a 12% discount.
The difference between margin and markup is that margin is sales minus the cost of goods Both parties agreed. How much cash will Empress have to pay for the pair of earrings?
sold; while, markup is the amount by which the cost is increased on a product to arrive at Solution:
the selling price. The basis for the mark-up calculation is the COST rather than revenue; Given: List Price ₱30,000; Discount Rate 12%
since the cost amount should be lower than the revenue amount, the markup percentage Trade Discount = List Price x Trade Discount Rate
must be HIGHER than the margin percentage. = ₱30,000 x 12%
= ₱3,600 References : Sirug, W. S. Ph.D (2016). BUSINESS MATHEMATICS for Senior High
*Net Price = List price – Trade Discount School – ABM Specialized Subject ( A Comprehensive Approach). MINDSHAPERS CO.,
= ₱30,000 – 3,600 INC. pp. 89 - 98
= ₱26,400
Rey, M.P. et.al. (2016). BUSINESS MATHEMATICS (Teaching Guide for Senior High
Discount Series School). Commission on Higher Education.
There are instances when a supplier or a manufacturer create discounts to encourage
specific behavior from its clients. Suppliers/manufacturers offer discounts based on several
conditions. For example, a manufacturer gives its distributor a discount of 20/10/5. This ACTIVITY: Problem Solving.
notation represents a Trade Discount Series. To interpret, the manufacturer, in addition to
the 20% discount, gives the distributor another 10% from the resulting discounted price if 1. A local grocery store purchase a dozen of eggs for ₱60 and sell it for ₱84.
the distributor purchases a set of the minimum volume of products and another 5% Compute for the:
discount if the products are paid in cash. o mark-up
Discount series can be converted to Single Equivalent Discount Rate (SEDR), which will o mark-up rate
result in equal discount as the discount series when taken separately. o gross margin
o gross margin ratio
Here is the formula:
SEDR = 1 – [(100% - DR1)(100% - DR2)(100% - DR3)…]
Net Price = [(100% - DR1)(100% - DR2)(100% - DR3)…] x Retail Price
where SEDR = Single Equivalent Discount Rate 2. A retailer paid ₱3,450 less for merchandise purchased amounting to ₱ 23,000
DR1 = Rate of first discount after he was allowed a trade discount. Compute for the trade discount rate.
DR2 = Rate of second discount
DR3 = Rate of third discount

Example 1 3. After the reduction of a trade discount rate of 25% of the merchandise
Calculate the single equivalent discount and amount of trade discount on merchandise with purchased, the invoice price was ₱13,500. What was the list price?
a list price of ₱35,000, less 20%, 10%, and 5%.
Solution:
Given: List Price =₱35,000; DR1 = 20%; DR2 = 10%; DR3 = 5% 4. A television is listed at ₱33,000, less discounts of 5%, 7%, and 9%. Find the net
SEDR = 1 - [(100% - DR1)(100% - DR2)(100% - DR3)] price.
SEDR = 1 - [(100% - 20%)(100% - 10%)(100% - 5%)]
SEDR = 1 - [(80%)(90%)(95)]
SEDR = 1 - [(0.80)(0.90)(0.95)]
5. Two suppliers offer identical sets of kitchenwares at the same list price.
SEDR = 1 – 0.684
However, Company ABC gives trade discount series of 20%, 15%, and 5%, while
SEDR = 0.316 or 31.6% Company DEF offers 25%, 10%, and 5%. Which is a better discount for the buyer?

Trade Discount = List Price x Trade Discount Rate