mark up VS margin Breakeven analysis and pricing.pptx

ppt presentation

1. Mark-up Vs margin Breakeven analysis and pricing

2. Basis of calculation: The main difference between margin and markup is the base used for calculation . Margin is calculated based on the selling price , while markup is calculated based on the cost price . Relationship between cost price and selling price: Margin and markup also differ in terms of how they relate to the cost and selling price of a product. Margin is the percentage of selling price that represents profit , while markup is the percentage of cost price that represents profit .

3. Example: Item costs R100.00 and sells for R150.00. Markup is R50 or 50% of the cost. Gross profit is R50 but 33% of the selling price. How to calculate: Markup % = (Selling price – cost price) / cost price x 100 Gross profit % = (Selling price – cost price) / selling price x 100

4. Margin vs Markup in Practice: Margin and markup are both useful measures of profitability , and businesses can choose to use either one or both depending on their needs and goals.

5. What is 'Break-even Pricing’? Definition :  Break-even pricing is an accounting pricing methodology in which the price point at which a product will earn zero profit is calculated. In other words, it is the point at which cost is equal to revenue.

6. a common tool used by most companies to set the pricing strategy of their products . It is computed by the management of a company to make informed decisions in case it wants to increase the production or put a check on costs.

7. The company can choose to set a price which is below the break-even point. But, in that case, the company would be earning revenues and would not be making any profits.

8. The break-even analysis formula requires three main pieces of information: Fixed costs per month: Fixed costs are what your business has to pay no matter how many units you sell. This could include rent, business insurance , business loan payments, accounting and legal services and utilities. What is the break-even analysis formula? The break-even analysis formula requires three main pieces of information:

9. From there, the break-even point can be calculated in units. Break-even point in units = fixed costs / (sales price per unit – variable costs per unit) Sales price per unit: This is the amount of money you will charge the customer for every single unit of product or service you sell. Make sure to include any discounts or special offers you give customers. If you sell multiple products or services, figure out the average selling price for everything combined. Variable costs per unit: These are the costs you incur for each unit you sell. They may include labor, the price of raw materials or sales commissions, and they are subject to change as sales fluctuate. To calculate, multiply the number of units produced by the costs of producing just one unit.

10. From there, the break-even point can be calculated in units. Break-even point in units = fixed costs / (sales price per unit – variable costs per unit)

11. Break-even analysis example Let's say you're thinking about starting a furniture manufacturing business. The first unit you're going to sell is a table. How many tables would you need to sell in order to break even? If it variable costs $50 to make a table and you have fixed costs of $1,000 , the number of tables you must sell to break even varies depending on price. Here are two scenarios: If you sell a table at $100: $1,000 / ($100 — $50) = 20 tables If you sell a table at $200: $1,000 / ($200 — $50) = 6.7 tables