Chapter 8 - Markups and markdowns: Perishables and breakeven analysis. In this chapter, the learning objectives are: 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,...
Markups and Markdowns: Perishables and Breakeven Analysis McGrawHill/Irwin Chapter Eight Copyright © 2014 by The McGrawHill Companies, Inc. All rights reserved Learning unit objectives LU 8-1: 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 Calculate cost when you know the selling price and percent markup on cost 82 Learning unit objectives LU 8-2: Markup Based on Selling Price (100%) 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 LU 8-2: Markdowns and Perishables Calculate markdowns; compare markdowns and markups Price perishable items to cover spoilage loss 83 Learning unit objectives LU 8-4: Breakeven Analysis Calculating contribution margin (CM) Calculating a breakeven point (BE) 84 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 85 Basic Selling Price Formula Assume Gap plans to sell hooded fleece jackets for $23 that cost them $18 86 Markups Based on Cost (100%) Cost + Markup = Selling price 100% Cost is 100% the Base 27.78% Dollar markup is the portion 127.78% Percent markup on cost is the rate 87 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 Percent markup on cost = Dollar markup Cost $5 $18 = 27.78% or 2778 Cost (B) = Check Dollar markup Percent markup on cost = $23 $18 $5 = $18 2778 Selling price = Cost + Markup 23 = 18 + 2778($18) $23 = $18 + $5 88 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 S S S = C + M = $100 + 65($100) = $100 + $65 = $165 Dollar Markup Selling Price 89 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 the tennis rackets cost Jill? What is the dollar markup? Calculate the cost: Calculate the dollar markup: S (Selling Price) = C (Cost) + M (Markup) $50 = C + 40(C) $50 = 1.40C 1.40 1.40 $35.71 = C M = S M = $50 M = $14.29 C $35.71 810 Markups Based on Selling Price (100%) Percent (%) markup on selling price is the rate (R) Dollar ($) markup is the portion (P) Selling price is 100% - the base (B) Cost 78.26% + Markup = + 21.74% = Selling price 100% 811 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? Dollar markup = Selling price Cost $5 = $23 $18 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 $5 $23 = 812 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? Calculate the selling price: S (Selling price) = C (Cost) + M (Markup) S - 65S 35S 35 S Calculate the dollar markup: = $100 + 65S - 65S = $100 35 = $285.71 M = S C M = $285.71 $100 M = $185.71 813 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 the tennis rackets cost Jill? S (Selling price) = $50 = $50 = - 20 $30 = C (Cost) + M (Markup) C + 40($50) C + $20 - $20 C Dollar Markup 814 Conversion Formula for Converting Percent Markup on Cost to Percent Markup on Selling Price: Percent markup on cost + Percent markup on cost 2778 = 21.74% + 2778 Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost: Percent markup on selling price Percent markup on selling price 2174 = 27.78% 2174 815 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 Selling price (original) = $7.20 $18.00 = 40% 816 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? TC (Total Cost) = 300 lb x $.14 = $42.00 TS (Total Sales) = TC + TM (Total Markup) TS = $42 + 60($42) TS = $67.20 300 lbs X 05 = 15 lbs $67.20 = $.24 285lbs Selling price per pound 300lbs 15lbs 817 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 = $1.20 818 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) $2.00 (S) - $.80 (VC) = 50,000 units 819 ... price, and vice versa LU 8-2 : Markdowns and Perishables Calculate markdowns; compare markdowns and markups Price perishable items to cover spoilage loss 83 Learning unit objectives LU 8-4 : Breakeven. .. Breakeven Analysis Calculating contribution margin (CM) Calculating a breakeven point (BE) 84 Terminology Cost - The price retailers pay to a manufacturer or supplier Selling Price - The price... 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