mark up and mark down lesson presentation .pdf

What is a markup and a markdown? Markup and markdown refer to the altering of a price (or cost of an item). A markup refers to increasing the cost price of an item before selling it. A markdown refers to decreasing the selling price of an item (this is often called a discount in retail shops).

1. CHAPTER 6 :CHAPTER 6 :
MARK UP & MARK DOWNMARK UP & MARK DOWN
6.1 Mark Up6.1 Mark Up
6.2 Conversion of 6.2 Conversion of
Mark Up PercentMark Up Percent
6.3 Mark Down 6.3 Mark Down
6.4 Profit & Loss6.4 Profit & Loss

2. 6.1 Mark Up6.1 Mark Up
An important principle in retail business is the
proper pricingproper pricing of its merchandise.
Wrong pricing may lead to small profit or heavy small profit or heavy
loss.loss.
The cost pricecost price is the original price of the original price of the
merchandise paid by the retailer.merchandise paid by the retailer.
The retailer must add an additional amountadd an additional amount
called the markup markup to its cost to cover its cover its
business and to provide a profit.business and to provide a profit.
Mark up – Introduction

3. 6.1 Mark Up6.1 Mark Up
The sum of this cost and markupsum of this cost and markup is the retail retail
(or selling) price(or selling) price.
In other words, markupmarkup (or gross profit or gross
margin) is the difference in the retail price and the difference in the retail price and
cost pricecost price;
R = C + MR = C + M
R = retail price
C = cost price
M = markup or gross profit
Mark up – Definition

4. 6.1 Mark Up6.1 Mark Up
Markup is usually expressed as a percent.percent.
It can be expressed as;
Mark up percent based on retail priceretail price:
Mark up percent based on cost pricecost price:
%100% ´=
C
M
M
c
Mark up – Percent
%100% ´=
R
M
M
r

5. 1.The cost price of an antique table is RM 5000. What is
the retail price & markup if the seller wants a 20%
markup based on
i.Cost price
ii.Retail price.
EXAMPLE 1EXAMPLE 1
SolutionSolution
000,6000,5
100
120
priceretail RMRM =´=
i. Based on Cost Price, we form a table:
RR == CC ++ MM
?? ==RM5000RM5000 ++ ??
120%C120%C==100%C100%C ++20%C20%C
0001
00050006markup
RM
RMRM
=
-=

6. 1.The cost price of an antique table is RM 5000. What is
the retail price & markup if the seller wants a 20%
markup based on
i.Cost price
ii.Retail price.
EXAMPLE 1EXAMPLE 1
250,6000,5
80
100
priceretail RMRM =´=
ii. Based on Retail Price, we form a table:
RR == CC ++ MM
?? ==RM5000RM5000 ++ ??
100%R100%R==80%R80%R ++20%R20%R
2501
00052506markup
RM
RMRM
=
-=
SolutionSolution

7. 2.Mariam’s Shop purchased 90 shirts at a cost of RM20
each. The shop expects that 10% of the shirts will be
sold at a reduced price of RM15 each. If the shop is to
maintain a 75% markup on cost on the entire
purchase, find the regular price of the shirts.
EXAMPLE 1EXAMPLE 1
SolutionSolution

8. 3.A retailer purchased 200 kg of cucumber at 50 cents
per kilogram. A 5% spoilage is expected. If he plans to
make a 40% markup based on overall cost, what is the
selling price of the cucumber?
EXAMPLE 1EXAMPLE 1
SolutionSolution

9. 6.2 Conversion of 6.2 Conversion of
Mark Up PercentMark Up Percent
Markup percent based on retail can be based on retail can be
converted to markup percent based on converted to markup percent based on
costcost and vice versa as follows.
Mark up – Conversion
cc
MM %%100%1 +=+
Markup percent based on
retail priceretail price
Since R = C + MR = C + M
c
c
r
M
M
M
%1
%
%
+
=
rr
MM%%1%100 +-=
Markup percent based on
costcost priceprice
Since R = C + MR = C + M
r
r
c
M
M
M
%1
%
%
-
=

10. 1.The markup percent based on cost price of an item is
20%. What is its markup percent based on retail priceretail price?
2.The markup percent based on retail price of an item is
15%. What is its markup percent based on cost pricecost price?
EXAMPLE 2EXAMPLE 2
SolutionSolution
%67.16
%100
%120
%20
%100%
=
´=
´=
retail
markup
M
r
1.From
RR == CC ++ MM
120%C120%C == 100%C100%C ++20%C20%C
OR
%67.16
%201
%20
%
%1
%
%
=
+
=
+
=
r
c
c
r
M
M
M
M
This also be worked out by
using the markup equation

11. 1.The markup percent based on cost price of an item is
20%. What is its markup percent based on retail priceretail price?
2.The markup percent based on retail price of an item is
15%. What is its markup percent based on cost pricecost price?
EXAMPLE 2EXAMPLE 2
SolutionSolution
2.From
RR == CC ++ MM
== ++
OR
This also be worked out by
using the markup equation

12. 6.3 Mark Down6.3 Mark Down
Markdown is a decrease in the selling decrease in the selling
price.price.
It is the difference in the old retail price
and the new retail price; that is
MD = OP – NP MD = OP – NP
MD = mark down
OP = old retail price
NP = new retail price
Mark down – Definition

13. 6.3 Mark Down6.3 Mark Down
Prices sometimes are markdown due to
many reasons:
to face stiff competition
to encourage purchases in bulk
to dispose off old, damaged or obsolete
stocks
to close a line of merchandise.
The markdown percentmarkdown percent, %MD is based
on old price, OP and is expressed as
follows:
Mark down – Percent
%100% ´=
OP
MD
MD

14. The markdown percent on a TV set is 10%. If the new retail
price is RM900, find the old retail price.
EXAMPLE 3EXAMPLE 3
SolutionSolution

15. During a clearance sale, an appliance department marked
down a microwave oven by 12%, making the selling price
RM400. At this selling price, the department made a 30%
markup on the selling price. Determine:
a) the regular price of the oven
b) the cost of the oven
c) the markup percent of the oven at the regular price
EXAMPLE 4EXAMPLE 4
SolutionSolution

16. A retailer wants to sell an item that cost RM200 at a
marked price less 15% discount that will give him a 28%
markup based on cost. Calculate
a) the actual selling price
b) the list price
EXAMPLE 5EXAMPLE 5
SolutionSolution

17. 6.4 PROFIT & LOSS6.4 PROFIT & LOSS
Not all businesses make money.
A business incurs operating expenses, OEOE
such as: rents, lighting, wages, rents, lighting, wages,
commissions, bonus and other operating commissions, bonus and other operating
expenses.expenses.
The markup must be able to cover the
operating expenses.
If markup is greater than operating markup is greater than operating
expensesexpenses, net profit is achievednet profit is achieved.
However if markup is less than operating markup is less than operating
expensesexpenses, loss is incurredloss is incurred.

18. 6.4 PROFIT & LOSS6.4 PROFIT & LOSS
If the retail price just covers the cost price retail price just covers the cost price
and the operating expensesand the operating expenses, then it does
not make any profit nor incur any lossnot make any profit nor incur any loss.
This price is called the breakeven pricebreakeven price,
that is;
Breakeven price = cost price + Breakeven price = cost price +
operating expensesoperating expenses
The earlier markup equation, now can be
expressed as follows;
Retail price = Cost + Net profit + Operating Retail price = Cost + Net profit + Operating
expensesexpenses
OENPCR ++=OR

19. A retailer bought a radio for RM200. Buying expenses
amounted to RM20. Operating expenses incurred were
20% of the cost price. If the retailer made a 25% net profit
based on cost, find
a. the retail price
b. the gross profit
c. the net profit
d. the breakeven price
EXAMPLE 6EXAMPLE 6
SolutionSolution

20. A dealer bought a hi-fi set for RM2000 less 10% and 5%.
He sold it at a discount of 20%. If the gross profit earned
by the dealer is 20% on the net retail price, find the list
price of the hi-fi set by him.
EXAMPLE 7EXAMPLE 7
SolutionSolution

21. PRACTICE 1PRACTICE 1
1.The markdown percent for a camera is 20%. If the
new retail price is RM250, find the old retail price.
2.The markdown percent for a shirt is 20%. If the old
retail price was RM40, find the new retail price.
3.If the markup percent based on retail price is 29%,
what is its markup percent based on cost price?
4.The markup percent based on cost is 35%. What is
the markup percent based on selling price?
5.Suppose that furniture store sold a lamp for RM70,
making a gross profit of 40% on cost. Assuming that
the store’s operating expenses run to 30% of cost,
what is the percentage of the store’s operating
expenses related to this sale?