Chapter 8 - Markups and markdowns: Perishables and breakeven analysis. After you have mastered the material in this chapter, you will be able to: Calculate dollar markup and percent markup on cost, calculate selling price when you know cost and percent markup on cost, calculate cost when dollar markup at percent markup on cost are known, calculate cost when you know the selling price and percent markup on cost.
Chapter 8 Markups and Markdowns: Perishables and Breakeven Analysis McGrawHill/Irwin ©2011 The McGrawHill Companies, All Rights Reserved #8 LU8.1 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives Markup Based on Cost (100%) Calculate dollar markup and percent markup on cost Calculate selling price when you know cost and percent markup on cost Calculate cost when dollar markup at percent markup on cost are known 82 Calculate cost when you know the selling #8 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives LU8.2 Markup Based on Selling Price (100%) 83 Calculate dollar markup and percent markup on selling price Calculate selling price when dollar markup and percent markup on selling price are known Calculate selling price when cost and percent markup on selling price are known Calculate cost when selling price and percent markup on selling price are known Convert from percent markup on cost to percent markup on selling price and vice versa #8 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives LU8.3 Markdowns and Perishables Calculate markdowns; compare markdowns and markups Price perishable items to cover spoilage loss 84 #8 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives LU8.4 Breakeven Analysis Calculating Contribution Margin (CM) Calculating a Breakeven Point (BE) 85 Terminology Cost The price retailers pay to a manufacturer or supplier Markup, margin, or gross profit The difference between the cost of bringing the goods into the store and the selling price Selling Price The price retailers charge customers 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 86 Basic Selling Price Formula Selling price (S) = Cost (C) + Markup (M) $23 Jean 87 $18 Price paid to bring Jeans into store $5 Dollars to cover operating expenses and make a profit Markups Based on Cost (100%) Dollar markup is the portion Cost + Markup = Selling Price 100% 27.78% 127.78% Cost is 100% the Base 88 Percent markup on cost is the rate Calculating Dollar Markup and Percent Markup on Cost • Gap buys fleece jackets Dollar Markup = Selling Price Cost $ 5 = $23 $18 for $18. They plans to sell them for $23. What is Gap’s markup? What is the percent markup on cost? Percent Markup on Cost = Dollar Markup Cost $5 = 27.78% $18 Check: Selling Price = Cost + Markup Cost (B) = Dollar Markup 23 = 18 + .2778(18) Percent markup on cost $23 = $18 + $5 89 $5 = $18 .2778 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 S = $165 810 Dollar Markup 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 = C + M $50 = C + .40(C) $50 = 1.40C 1.40 1.40 $35.71 = C 811 M = S C M = $50 $35.71 M = $14.29 Markups Based on Selling Price (100%) Dollar ($) markup is the portion (P) Cost + Markup = Selling Price 78.26% + 21.74% = 100% Percent (%) markup on selling price is the rate (R) 812 Selling Price is 100% the Base (B) Calculating Dollar Markup and Percent Markup on Selling Price • The cost to Gap for a hooded Dollar Markup = Selling Price Cost $ 5 = $23 $18 fleece jacket is for $18; the store then plans to sell them for $23. What is Gap’s dollar markup? What is its percent markup on selling price? Percent Markup on Selling Price = Dollar Markup Selling Price $5 = 21.74% $23 Check: Selling Price = Cost + Markup Selling Price = Dollar Markup 23 = 18 + .2174($23) Percent markup on SP $23 = $18 + $5 813 $5 = $23 .2174 Calculating Selling Price When You Know Cost and Percent Markup on Selling Price • Mel’s Furniture bought a lamp for $100. To make desired profit, he needs a 65% markup on selling price. What are Mel’s selling price and dollar markup? M = S C M = $285.71 $100 M = $185.71 814 S = C + M S = $100 + .65(S) .65s .65S 35s = $100 35 .35 S = $285.71 Calculating Cost When You Know Selling Price and 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? S = C + M $50 = C + .40($50) $50 = C + $20 20 $20 $30 = C 815 Dollar Markup Conversion Formula for Converting Percent Markup on Cost to Percent Markup on Selling Price Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost Percent markup on cost Percent markup on selling price 1+ Percent markup on cost 1 Percent markup on selling price 2778 = 21.74% 1+.2778 816 2174 = 27.78% 1.2174 Markdowns Markdown percent = Dollar markdown Selling price (original) $10.80 Sears marked down a $18 tool set to $10.80. What are the dollar markdown and the markdown percent? $7.20 $18.00 40% 817 $18$10.80 Markdown Pricing Perishable Items TC = 300lb. X $.14 = $42.00 TS = TC + TM • Alvin’s vegetable stand TS = $42 + .60($42) grew 300 pounds of tomatoes. He expects 5% TS = $67.20 of the tomatoes to become spoiled and not salable. 300 lbs. X .05 = 15lbs The tomatoes cost Alvin Selling $.14 per pound and he $67.20 = $.24 Price per wants a 60% markup on 285lbs. cost. What price per pound pound should Alvin charge for the tomatoes? 300lbs. 15lbs 818 Calculating a Contribution Margin (CM) Contribution margin (CM) = Selling Price (S) – Variable cost (VC) • 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 = $1.20 819 Calculating a Breakeven Point (BE) Breakeven point (BE) = Fixed Costs (FC) Contribution margin (CM) • Jones Company produces pens. The company has 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 $2.00 (S) $.80 (VC) 820 ... $5 = 27. 78% $ 18 Check: Selling Price = Cost + Markup Cost (B) = Dollar Markup 23 = 18 + .27 78( 18) Percent markup on cost $23 = $ 18 + $5 8 9 $5 = $ 18 .27 78 Calculating Selling Price When You Know ... Selling price (original) $10 .80 Sears marked down a $ 18 tool set to $10 .80 . What are the dollar markdown and the markdown percent? $7.20 $ 18. 00 40% 8 17 $ 18 $10 .80 Markdown Pricing Perishable Items... Dollar markup is the portion Cost + Markup = Selling Price 100% 27. 78% 127. 78% Cost is 100% the Base 8 8 Percent markup on cost is the rate Calculating Dollar Markup and