13-Mathematics of Merchandising VU
LECTURE 13
MATHEMATICS OF MERCHANDISING
OBJECTIVES
The objectives of the lecture are to learn about:
• Review Lecture 12
• Solve merchandising pricing problems involving markup and markdown
MARKUP
Markup is an amount added to a cost price while calculating a selling price. Especially, an amount
that takes into account of overhead and profit. Markup can be expressed as:
1. Percentage of cost.
2. Percentage of sale.
3. Rs Markup
Markup as Percentage of Cost (MUC):
Here markup is some percentage of cost price. For simplicity, it is also named as %Markup on
cost. The relation between %markup on cost, cost price and selling price is:
Selling Price = Cost price + (Cost price × %Markup on cost)
= Cost price (1 + %Markup on cost)
Markup as Percentage of Sale price (MUS):
Here markup is some percentage of selling price. For simplicity, it is also named as %Markup on
sale. The relation between %markup on sale, cost price and selling price is:
Selling Price = Cost price + (Selling price × %Markup on sale)
Cost price = Selling price – (Selling price × %Markup on sale)
= Selling price ( 1 – %Markup on sale)
Rs Markup:
Markup in terms of rupees is called Rs markup. The relations between Rs markup, cost price and
selling price are:
1. Selling Price = Cost price + Rs Markup
2. Rs Markup = %Markup on cost × Cost price
3. Rs Markup = %Markup on sale × Selling price
Any of the above formula can be used to find Rs Markup.
For example:
The cost price of certain item is 80Rs and its selling price is 100Rs. Then
Rs Markup = Selling price – Cost price
= 100 – 80
= 20 Rs
Remember: If some percentage is given as markup, without mentioning that whether it is
markup on cost or markup on sale, it is evident that %markup on cost is under consideration
EAMPLE 1
A golf shop pays its wholesaler 2,400Rs. for a certain club, and then sells it for
4,500Rs. What is the markup rate?
Calculation of Markup
Cost price = 2400Rs
Selling price = 4500Rs
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Selling Price = Cost price + (Cost price × %Markup on cost)
%Markup on cost = Selling price – Cost price ×100%
Cost price
Since
Rs Markup = Selling Price - Cost price
%Markup on cost = Rs markup ×100%
Cost price
1. First, calculate Rs markup :
Rs markup = 4500 – 2400 = 2100Rs
Then %markup on cost
%Markup on cost = Rs markup ×100%
Cost price
= 2100/2400 ×100% = 87.5%
Remember to convert this fraction value to a percent. The markup rate is
87.5%.
Calculation using EXCEL
Enter whole-sale price 2400 in cell B5
Enter sale price 4500 in cell B6
Enter formula for Rs. Markup =B6-B5 in cell B7and press enter. The answer is 2100.
Enter formula for % markup =B7/B5*100 in cell B8 and press Enter. The answer is
87.5% shown in cell B9.
MARKUP-EXAMPLE 2
A computer software retailer used a markup rate of 40%.
Find the selling price of a computer game that cost the retailer Rs. 1,500.
Markup
The markup is 40% on the cost, so as
Rs Markup = %Markup on cost × Cost price
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Rs Markup = (0.40) (1,500) = Rs. 600
Selling Price
Then the selling price, being the cost plus markup, that is:
Selling Price = Cost price + Rs Markup
=1,500 + 600 = Rs. 2,100
The item sold for Rs. 2,100.
Calculation using EXCEL
Here we use the following formula to show an alternate method of solving the above
problem.
Selling Price = Cost price (1 + %Markup on cost)
Enter whole-sale price 1500 in cell B17.
Enter % Markup in cell B18.
Enter formula =(1+B18/100)*B17 in cell B19. Here the term 1+B18/100 is the
multiplication factor. B18/100 is the %markup in fraction. The answer 2100 is
shown in cell B20.
We could have calculated the multiplication factor separately. But as you see it is not
necessary as the entire calculation can be done in one line.
.
MARKDOWN
Markdown means a reduction from the original sale price to
1. stimulate demand or
2. take advantage of reduced costs or
3. force competitors out of the market.
Markdown can be expressed as
Percentage of current selling price
Rs markdown
Markdown as Percentage of current selling price
Here markdown is some percentage of current selling price. For simplicity, it is also
named as percent markdown (%markdown). The relation between current selling
price, %markdown and new selling price is:
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13-Mathematics of Merchandising VU
New selling price = Current selling price – (Current selling price × %markdown)
= Current selling price (1 - %markdown)
Rs Markdown
Markdown in terms of rupees is called Rs markdown.
1. New selling price = Current selling price – Rs Markdown
2. Rs markdown = Current selling price × %markdown
Let us look at an example to understand how markdown is calculated.
MARKDOWN-EXAMPLE 1
An item originally priced at 3,300 Rs. is marked 25% off.
What is the sale price?
Markdown
First, find the Rs markdown.
The markdown is 25% of the original price or current selling price, as
Rs markdown = original price × %markdown
= (0.25)(3300) = 825Rs
Selling Price
Then calculate the sale price, by subtracting the markdown from the original price:
New Selling price = 3,300 – 825 = 2,475Rs
The sale price is 2,475 Rs.
Calculation using EXCEL
Enter original price 3300 in cell B28.
Enter % Markdown 25 in cell B29.
Enter formula for Rs. Markdown (=B29/100*B28) in cell B30. Here the term B29/100
is the markdown in fraction. The result of this part of the calculation is 825.
Enter formula for new sale price (=B28-B30) in cell B31. This formula is not shown in
the slide.
We could have calculated the new sale price directly also by writing just one formula
(=(1-B29/100)*B28) by using following formula
New selling price = Current selling price (1 - %markdown)
In other words the multiplication factor is calculated as 1-0.25 = 0.75 and multiplied
with the original price 3300. The answer would be the same. By breaking the
calculation in parts you can check the intermediate result and avoid errors. But if you
become very conversant with formulas then you may wish to reduce the number of
unnecessary steps in the calculations.
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DISCOUNT
Discount is a reduction in price which the seller offers to the buyer. There are
different types of discount.
1. Trade discount.
2. Cash discount
3. Seasonal discount, etc
TRADE DISCOUNT
When a manufacturer or wholesaler offers goods for sale, a list price or retail price is set for each
item. This is the suggestion price to be charged from the ultimate consumer. A discount on the list
price granted by a manufacturer or wholesaler to buyers in the same trade is called trade
discount. Trade discount represents a reduction in list price in return for quantity purchases. Thus
Rs Trade discount = list price × discount rate
Net price = list price – Rs trade discount
There are two main types of trade discounts
1. Single trade discount.
2. Multiple or series trade discount
SINGLE TRADE DISCOUNT-EXAMPLE 1
The price of office equipment is 3000 Rs. The manufacturer offers a 30% trade
discount. Find the net price and the trade discount amount.
Discount
Net Price = L(1 – d)
= 3000(1 – 0.3)
= 3000(0.7)
= 2100 Rs.
Amount of discount = dL
= 0.3 × 3000 = 900 Rs.
Calculation using EXCEL
Enter price of equipment 3000 in cell B39.
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13-Mathematics of Merchandising VU
Enter % trade Discount 30 in cell B40.
Enter formula for Rs. Discount =B40/100*B3 in cell B41. Here the term B40/100 is
the discount in fraction. The result of this part of the calculation is 900.
Enter formula for net price =B39-B41 in cell B42. This formula is not shown in the
slide.
The result is 2100 as shown in cell B42.
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