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9.1 Markup on Cost

9.1 Markup on Cost. Selling Price: price for product offered to public Markup, margin, or gross profit: difference between the cost and the selling price Basic formula: Cost + Markup = Selling Price (in this section markup is based on cost). 9.1 Markup on Cost.

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9.1 Markup on Cost

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  1. 9.1 Markup on Cost • Selling Price: price for product offered to public • Markup, margin, or gross profit: difference between the cost and the selling price • Basic formula: Cost + Markup = Selling Price(in this section markup is based on cost)

  2. 9.1 Markup on Cost • Example: A coffee maker is purchased for $15 and sold for $18.75. Find the percent of markup based on cost.Markup = M = $18.75 - $15 = $3.75Percent equation: P = partB = baseR = rate = percent

  3. 9.1 Markup on Cost • Example: A baseball glove is sold for $42, which is 140% of cost. How much is the store’s cost?Selling price= 140% of cost so the markup is 40% of cost (cost is 100% of itself)

  4. 9.1 Markup on Cost • Example: North American Coins priced a proof coin at $868, which was 112% of cost. Find (a) the cost, (b) the markup as a percent of cost, and (c) the markup.Selling price= 112% of cost so the markup is 12% of cost

  5. 9.2 Markup on Selling Price • Sometimes markup is based on the selling price rather than cost. The same basic formula applies: • The difference is that markup is now considered a percent of the selling price rather than cost

  6. 9.2 Markup on Selling Price • Example: An auto parts dealer pays $7.14 per 12 gallons of windshield washer fluid and the markup is 50% on selling price. Find the selling price.Markup = 50% of the selling price

  7. 9.2 Markup on Selling Price • Example: A retailer purchases silk flowers for $31.56 per dozen and sells them for $4.78 each. Find the percent markup on selling price and the equivalent percent markup on cost.

  8. 9.2 Markup on Selling Price • Converting percent markup on cost to percent markup on selling price: • Converting percent markup on selling price to percent markup on cost:

  9. 9.2 Markup on Selling Price • Example: Convert a markup of 20% on selling price to its equivalent markup on cost.

  10. 9.3 Markup with Spoilage • Markup with spoilage: Some items may not be fit for sale or will go bad. Sometimes they can be sold for a reduced price. Sometimes they are a total loss. The selling price has to be higher to make up for this loss.

  11. 9.3 Markup with Spoilage • Example: The cost for 36 items is $540. If 6 items cannot be sold, what is the selling price per item for a % markup of 25% on selling price?

  12. 9.3 Markup with Spoilage • The cost for 120 items is $360. If 10% are sold at a reduced price of $2, what is the selling price per item for a markup of 20% on cost?

  13. 10.1 Markdown • When merchandise does not sell at the original price the price must be reduced. The basic formula for markdown is: • Example: What is the reduced price if the original price was $960 and the markdown is 25%?

  14. 10.1 Markdown • Example: Given an original price of $240 and a markdown of $96, what is the percent markdown and the reduced price?

  15. 10.1 Markdown • Markdown equations:Break-even point = Cost + Operating expensesOperating Loss = Break-even point – Reduced selling priceAbsolute loss = Cost – Reduced selling price

  16. 10.1 Markdown • Given a cost of $25, operating expense of $8, and reduced price of $22, what is the break-even point, the operating loss, and the absolute loss?

  17. 11.1 Basics of Simple Interest • Simple Interest Formula:I = interest, P = principal, R = rate of interest per year, T = time in years • Example: Given an investment of $9500 invested at 12% interest for 1½ years, find the simple interest.

  18. 11.1 Basics of Simple Interest • Example: If money invested at 10% interest for 7 months yields $84, find the principal.

  19. 11.1 Basics of Simple Interest • Example: If $2600 is invested for 7 months and yields simple interest of $144.08, what is the interest rate?

  20. 11.2 Simple Interest for a Given Number of Days • To find the exact number of days between two dates (2 methods): • Get the number corresponding to each date (Julian date) from table 11.1 and subtract • Add the number of days in between the two dates going month by month using the number of days in each month

  21. 11.2 Simple Interest for a Given Number of Days • Find the number of days from April 24 to July 7:(1) Using table 11.1, April 24 = day 114July 7 = day 188, # days = 188 – 114 = 74(2) # days left in April = 6# days in May = 31# days in June = 30# days in July = 7Total days = 6 + 31 + 30 + 7 = 74

  22. 11.2 Simple Interest for a Given Number of Days • Exact interest: • Ordinary or banker’s interest: • Example: Given an investment of $2600 invested at 10.5% interest for 180 days, find the ordinary interest.

  23. 11.2 Simple Interest for a Given Number of Days • Example: Bella missed an income tax payment. The payment was due on June 15 and was paid September 7. The penalty was 14% simple interest on the unpaid tax of $4600. Find the penalty using exact interest.#days = 15 + 31 + 31 + 7 = 84 days

  24. 11.3 Maturity Value • Maturity Value = amount loaned + interest • Maturity Date = date the loan is paid off • Example: A $12,200 loan is borrowed at 9.5% for 10 months. Find the interest and maturity value.

  25. 11.3 Maturity Value • Find the Time: If a loan of $7400 is borrowed at 9.5% has interest of $292.92, find the time in days and the maturity value

  26. 11.3 Maturity Value • Find the Principal and Rate: If a loan is borrowed with interest of $300 for 120 days with a maturity value of $7800, find the principal and interest rate.

  27. 11.4 Inflation and the Time Value of Money • Inflation: continuing rise in the general price level of goods and services • Consumer Price Index (CPI): one way to measure inflation. The CPI reflects the average change in prices from one year to the next. • Time Value of Money: the idea that loaning money has value and that value is repaid by returning interest in addition to principal.

  28. 11.4 Inflation and the Time Value of Money • Present value: principal amount that must be invested today to produce a given future value. • Future value: amount that a present value grows to; also called the maturity amount.

  29. 11.4 Inflation and the Time Value of Money • Time Value of Money – with simple interest of 5% per year. 2000 2010 2020

  30. 11.4 Inflation and the Time Value of Money • Example: If the present value = $8000 at 8.5% for 140 days, what is the future value?

  31. 11.4 Inflation and the Time Value of Money • Example: If the future value = $1985.50 at 9% for 180 days, what is the present value?

  32. 12.1 Simple Interest Notes • Promissory note: Legal note in which a person agrees to pay a certain amount of money at a stated time and interest rate to another person • Face value of note: principal (P) • Maturity value: M = P + I = P + PRT = P(1 + RT) • Term of the note: T – often given in days (convert to years for formulas)

  33. 12.1 Simple Interest Notes • Example: For a promissory note with face value of $9500, term of 200 days, rate of 10%, and date made of March 18, find the due date and the maturity value.Using table 11.1, March 18 = day 7777 + 200 = day 277 = October 4 (due date)

  34. 12.1 Simple Interest Notes • Example: For a simple interest note with maturity value of $7632, term of 240 days, and rate of 9%, find the principal.

  35. 12.2 Simple Discount Notes • Simple discount note: interest is deducted in advance from the face value written on the note. • M = face value = maturity value (not the principal) • B = bank discount (similar to interest) • D = discount rate (similar to rate of interest) • T = time in years

  36. 12.2 Simple Discount Notes • Maturity for simple interest: • Maturity for discount notes:(similar but you subtract the discount from the maturity)

  37. 12.2 Simple Discount Notes • Example: For a simple discount note with a maturity value of $6800, discount rate of 10%, and time of 180 days, find the discount and the proceeds.

  38. 12.2 Simple Discount Notes • Example: For a simple discount note with a maturity value of $8200, discount of $205, and date made of 2/9, due date of 5/10, find the discount rate, time in days, and the proceeds.

  39. 12.3 Comparing Simple Interest and Simple Discount • Similarities between simple interest notes and simple discount notes: • Borrower receives money at the beginning of each note. • Both notes are repaid with a single payment at the end of the period. • Length of time is generally less than 1 year.

  40. 12.3 Comparing Simple Interest and Simple Discount • Differences between simple interest notes and simple discount notes: • Formulas • Discount notes: • Interest notes: • A simple interest rate 12% (relative to present value) is not the same as a simple discount rate of 12% (relative to maturity value.

  41. 12.3 Comparing Simple Interest and Simple Discount • Converting interest rate to discount rate • Converting discount rate to interest rate

  42. 12.3 Comparing Simple Interest and Simple Discount • Example: Given an interest rate of 8% and a time period of 240 days, find the corresponding simple discount rate:

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