Chapter 8
Markups and Markdowns:
Perishables and
Breakeven Analysis
Practical Business Math Procedures, 12th Edition
Jeffrey Slater and Sharon Wittry
8-1
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Learning unit objectives
LU 8-1: Markup Based on Cost (100%)
1. Calculate dollar markup and percent markup on cost.
2. Calculate selling price when you know cost and percent
markup on cost.
3. Calculate cost when dollar markup at percent markup on
cost are known.
4. Calculate cost when you know the selling price and
percent markup on cost.
8-2
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Learning unit objectives
LU 8-2: Markup Based on Selling Price (100%)
1. Calculate dollar markup and percent markup on selling
price.
2. Calculate selling price when dollar markup and percent
markup on selling price are known.
3. Calculate selling price when cost and percent markup
on selling price are known.
4. Calculate cost when selling price and percent markup
on selling price are known.
5. Convert from percent markup on cost to percent markup
8-3
on selling price, and vice versa.
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Learning unit objectives
LU 8-3: Markdowns and Perishables
1. Calculate markdowns; compare markdowns and
markups.
2. Price perishable items to cover spoilage loss.
LU 8-4: Breakeven Analysis
1. Calculating contribution margin (CM).
2. Calculating a breakeven point (BE).
8-4
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Terminology
Cost - The price retailers pay to a manufacturer or
supplier.
Selling Price - The price retailers charge customers.
Markup, Margin, or Gross Profit - The difference
between the cost of bringing the goods into the store
and the selling price.
Operating Expenses or Overhead - The regular expenses
of doing business, such as rent, wages, utilities, etc.
Net profit or Net Income - The profit remaining after
subtracting the cost of bringing the goods into the store
and the operating expenses. 8-5
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Basic Selling Price Formula
Assume Gap plans to sell hooded fleece jackets for $23 that cost
them $18.
8-6
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Markups Based on Cost (100%)
Cost + Markup = Selling price
100% 27.78% 127.78%
Cost is 100% - Dollar markup Percent markup on cost is
the Base is the portion the rate
Cost + Markup = Selling price
Cost (B) = Dollar markup
Percent markup on cost
Selling price = Dollar markup 8-7
Percent markup on SP
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Calculating Dollar Markup and
Percent Markup on Cost
Gap buys fleece jackets for $18. They plan to sell them for $23.
• What is Gap’s markup? What is the percent markup on cost?
Dollar markup = Selling price -- Cost $ 5 = $23 -- $18
Percent markup on cost = Dollar markup $5
Cost $18 = 27.78% or .2778
Cost (B) = Dollar markup $5 = $18
Percent markup on cost .2778
Cost + Markup = Selling price
Check Selling price = Cost + Markup
Cost (B) = Dollar markup
23 = 18 + .2778($18) Percent markup on cost 8-8
Selling price = Dollar markup
$23 = $18 + $5 Percent markup on SP
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Calculating Selling Price When You
Know Cost and Percent Markup on
Cost
Mel’s Furniture bought a lamp for $100. To make Mel’s desired
profit, he needs a 65% markup on cost.
• What is Mel’s dollar markup? What is his selling price?
S = C + M
S = $100 + .65($100)
S = $100 + $65 Dollar Markup
S = $165 Selling Price
Cost + Markup = Selling price
Cost (B) = Dollar markup
Percent markup on cost 8-9
Selling price = Dollar markup
Percent markup on SP
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Calculating Cost When You Know
Selling Price and Percent Markup on Cost
Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make her
desired profit, Jill needs a 40% markup on cost.
What do the tennis rackets cost Jill? What is the dollar markup?
S (Selling Price) = C (Cost) + M (Markup)
$50 = C + .40(C)
Calculate $50 = 1.40C
the cost: 1.40 1.40
$35.71 = C
Cost + Markup = Selling price
Cost (B) = Dollar markup
Calculate M = S - C Percent markup on cost
the dollar 8-10
M = $50 - $35.71 Selling price = Dollar markup
markup: Percent markup on SP
M = $14.29
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Markups Based on Selling Price
(100%)
Percent (%) markup on selling price is the rate (R)
Dollar ($) markup is the portion (P)
Selling price is 100% - the base (B)
Cost + Markup = Selling price
78.26% + 21.74% = 100%
8-11
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Calculating Dollar Markup and
Percent Markup on Selling Price
The cost to Gap for a hooded fleece jacket is $18; the store then
plans to sell them for $23. What is Gap’s dollar markup? What is
its percent markup on selling price? Cost + Markup = Selling price
Cost (B) = Dollar markup
Dollar markup = Selling price -- Cost Percent markup on cost
$5 = $23 -- $18 Selling price = Dollar markup
Percent markup on SP
Percent markup on selling price = Dollar markup
Selling price
$5 = 21.74%
$23 Check
Selling price = Dollar markup Selling price = Cost + Markup
Percent markup on SP 23 = 18 + .2174($23)
$23 = $18 + $5 8-12
$5 = $23
.2174
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Calculating Selling Price When You
Know Cost and Percent Markup on
Selling Price
Mel’s Furniture bought a lamp for $100. To make Mel’s desired profit,
he needs a 65% markup on selling price.
• What are Mel’s selling price and dollar markup?
S (Selling price) = C (Cost) + M (Markup)
Calculate the
selling price: S = $100 + .65S
- .65S - .65S
.35S = $100
.35 .35
S = $285.71
8-13
Calculate the M = S -- C
dollar M = $285.71 -- $100
markup: M = $185.71
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Calculating Cost When You Know
Selling Price and Percent Markup
on Selling Price
Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make
her desired profit, Jill needs a 40% markup on selling price. What is the
dollar markup? What do the tennis rackets cost Jill?
Cost + Markup = Selling price
Cost (B) = Dollar markup
Percent markup on cost
Selling price = Dollar markup
S (Selling price) = C (Cost) + M (Markup) Percent markup on SP
$50 = C + .40($50)
$50 = C + $20
- 20 - $20 Dollar Markup
$30 = C
8-14
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Conversion
Formula for Converting Percent Markup Formula for Converting Percent Markup
on Cost to Percent Markup on Selling on Selling Price to Percent Markup on
Price: Cost:
Percent markup on cost Percent markup on selling price
1 + Percent markup on cost 1 -- Percent markup on selling price
.2778 = 21.74% .2174 = 27.78%
1 + .2778 1 -- .2174
Percent Markup on Selling Price Percent Markup on Cost
8-15
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Markdowns
Markdown percent = Dollar markdown
Selling price (original)
Dollar markup = Original selling price – New selling price
Example:
Sears marked down a $18.00 tool set to $10.80. What are the dollar
markdown and the markdown percent?
$18.00 -- $10.80 = $7.20 markdown
Dollar markdown = $7.20 = 40%
Selling price (original) $18.00
8-16
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Pricing Perishable Items
Alvin’s vegetable stand grew 300 pounds of tomatoes. He expects 5% of
the tomatoes to become spoiled and not salable. The tomatoes cost
Alvin $.14 per pound and he wants a 60% markup on cost.
• What price per pound should Alvin charge for the tomatoes?
Cost + Markup = Selling price
TC (Total Cost) = 300 lb. x $.14 = $42.00 Cost (B) = Dollar markup
Percent markup on cost
TS (Total Sales) = TC + TM (Total Markup)
Selling price = Dollar markup
TS = $42 + .60($42) Percent markup on SP
TS = $67.20
300 lbs X .05 = 15 lbs
$67.20 = $.24 Selling price per pound
285lbs
8-17
300lbs -- 15lbs
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Calculating a Contribution Margin
(CM)
Contribution margin (CM) = Selling price (S) – Variable cost (VC)
Example:
Assume Jones Company produces pens that have a selling price (S)
of $2 and a variable cost (VC) of $.80. Calculate the contribution
margin.
CM = $2,00 (S) -- $.80 (VC)
CM = $1.20
8-18
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Calculating a Breakeven Point
(BE)
Breakeven point (BE) = Fixed costs (FC)
Contribution margin (CM)
Example:
Jones Company produces pens. The company has a fixed cost
(FC) of $60,000. Each pen sells for $2.00 with a variable cost
(VC) of $.80 per pen.
Breakeven point (BE) = $60,000 (FC) = 50,000 units
$2.00 (S) - $.80 (VC)
8-19
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Problem 8-1
Find the dollar markup and selling price for the following problems. Round answers
to the nearest cent. LU 8-1(1, 2)
Item Cost Markup Percent Dollar Markup Selling Price
Blackberry iPad $500 20% ? ?
Solution:
S (Selling Price) = C (Cost) + M(Markup)
S = $500 + .20($500)
S = $500 + $100
S = $600
Check = Cost x (1 + Percent markup on cost)
Cost + Markup = Selling price
$600 = $500 x 1.20 Cost (B) = Dollar markup
Percent markup on cost
8-20
Selling price = Dollar markup
Percent markup on SP
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Cost + Markup = Selling price
Problem 8-3 Cost (B) = Dollar markup
Percent markup on cost
Selling price = Dollar markup
Percent markup on SP
Solve for cost (round to the nearest cent): LU 8-1(3)
Selling price of office furniture at Staples, $6,000
Percent markup on cost, 40%
Actual cost?
Solution:
C = Selling price
1 + Percent markup on cost
$6,000 = C + .40C
$6,000 = 1.40 C
1.40 1.40
$4,285.71 = C
8-21
Check $6,000 = $4,285.71
1.40
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Cost + Markup = Selling price
Problem 8-5 Cost (B) = Dollar markup
Percent markup on cost
Selling price = Dollar markup
Percent markup on SP
Cost Selling Price Dollar Markup Percent Markup on Cost*
$15.10 $22.00 ? ?
*Round to the nearest hundredth percent.
Solution:
Selling Price - Cost = Dollar markup
$22.00 - $15.10 = $6.90
Dollar markup = $6.90 = 45.70%
Cost $15.10
8-22
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Cost + Markup = Selling price
Cost (B) = Dollar markup
Problem 8-7 Percent markup on cost
Selling price = Dollar markup
Percent markup on SP
Assume markups are based on selling price. Find the dollar markup and cost (round
answers to the nearest cent): LU 8-2(1, 2)
Item Selling Price Markup Percent Dollar Markup Cost
Sony LCD TV $1,000 45% ? ?
Solution: Note: Markup is on selling price, not cost.
$1,000.00 = C + .45($1,000)
$1,000.00 = C + $450.00
-$450.00 = -$450.00
$550.00 = C
Check
$550 = $1,000 X .55 8-23
C = Selling price X (1 – Percent markup on selling price)
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