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Chapter 8

Chapter 8. Markups and Markdowns: Perishables and Breakeven Analysis. #8. Markups and Markdowns; Perishables and Breakeven Analysis. Learning Unit Objectives. Markup Based on Cost (100%). LU8.1. Calculate dollar markup and percent markup on cost

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Chapter 8

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  1. Chapter 8 Markups and Markdowns: Perishables and Breakeven Analysis

  2. #8 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives Markup Based on Cost (100%) LU8.1 • 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

  3. #8 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives Markup Based on Selling Price (100%) LU8.2 • 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 selling price to percent markup on cost and vice versa

  4. #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

  5. #8 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives LU8.4 Breakeven Analysis • Calculating Contribution Margin (CM) • Calculating a Breakeven Point (BE)

  6. Terminology Cost - The price retailers pay to a manufacturer or supplier Selling Price - The price retailers charge customers Operating expenses or overhead - The regular expenses of doing business such as rent, wages, utilities, etc. Markup, margin, or gross profit - The difference between the cost of bringing the goods into the store and the selling price Net profit or net income - The profit remaining after subtracting the cost of bringing the goods into the store and the operating expenses

  7. Basic Selling Price Formula Selling price (S) = Cost (C) + Markup (M) $23 Jean $18 - Price paid to bring Jeans into store $5 - Dollars to cover operating expenses and make a profit

  8. Markups Based on Cost (100%) Dollar markup is the portion Cost + Markup = Selling Price 100% 27.78% 127.78% Cost is 100% - the Base Percent markup on cost is the rate

  9. Calculating Dollar Markup and Percent Markup on Cost Target buys Levi’s Jeans for $18. They plans to sell them for $23. What is Target’s markup? What is his percent markup on cost? Dollar Markup = Selling Price - Cost $ 5 = $23 - $18 Percent Markup on Cost = Dollar Markup Cost $5 = 27.78% $18 Check: Selling Price = Cost + Markup 23 = 18 + .2778(18) $23 = $18 + $5 Cost (B) = Dollar Markup Percent markup on cost $5 = $18 .2778

  10. Calculating Selling Price When You Know Cost and Percent Markup on Cost Ray’s Appliances bought a refrigerator for $100. To make desired profit, he needs a 65% markup on cost. What is Ray’s dollar markup? What is his selling price? S = C + M S = $100 + .65($100) S = $100 + $65 S = $165 Dollar Markup

  11. Calculating Cost When You Know Selling Price and Percent Markup on Cost Jane’s imported flower business sells floral arrangements for $50. To make her desired profit, Jane needs a 40% markup on cost. What do the flower arrangements cost Jane? What is the dollar markup? S = C + M $50 = C + .40(C) $50 = 1.40C 1.40 1.40 $35.71 = C M = S - C M = $50 - $35.71 M = $14.29

  12. Markups Based on Selling Price (100%) Dollar ($) markup is the portion (P) Cost + Markup = Selling Price 78.26% + 21.74% = 100% Selling Price is 100% - the Base (B) Percent (%) markup on selling price is the rate (R)

  13. Calculating Dollar Markup and Percent Markup on Selling Price Target buys Levi’s Jeans for $18. They plans to sell them for $23. What is Target’s markup? What is his 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 23 = 18 + .2174($23) $23 = $18 + $5 Selling Price = Dollar Markup Percent markup on SP $5 = $23 .2174

  14. Calculating Selling Price When You Know Cost and Percent Markup on Selling Price Ray’s Appliances bought a refrigerator for $100. To make desired profit, he needs a 65% markup on selling price. What is Ray’s selling price and dollar markup? S = C + M S = $100 + .65(S) -.65s- .65S .35s = $100 .35 .35 S = $285.71 M = S - C M = $285.71 - $100 M = $185.71

  15. Calculating Cost When You Know Selling Price and and Percent Markup on Selling Price Jane’s imported flower business sells floral arrangements for $50. To make her desired profit, Jane needs a 40% markup on selling price. What is the dollar markup? What do the flower arrangements cost Jane? S = C + M $50 = C + .40($50) $50 = C + $20 -20- $20 $30 = C Dollar Markup

  16. Conversion Formula for Converting Percent Markup on Cost to Percent Markup on Selling Price Percent markup on cost 1+ Percent markup on cost .2778 = 21.74% 1+.2778 Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost Percent markup on selling price 1- Percent markup on selling price .2174 = 27.78% 1-.2174

  17. Equivalent Markup Percent markup on Percent markup on cost Selling Price (round to nearest tenth percent) 20 25.0 25 33.3 30 42.9 33 49.3 35 53.8 40 66.7 50 100.0

  18. Markdowns Markdown percent = Dollar markdown Selling price (original) Sears marked down a $18 tool set to $10.80. What are the dollar markdown and the markdown percent? $10.80 $18-$10.80 Markdown $7.20 $18.00 40%

  19. 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 = 300lb. X $.14 = $42.00 TS = TC + TM TS = $42 + .60($42) TS = $67.20 300 lbs. X .05 = 15lbs $67.20 = $.24 285lbs. Selling Price per pound 300lbs. - 15lbs

  20. Terminology Fixed Cost (FC) – Costs that do not change with increases or decreases in sales Variable costs (VC) – Costs that do change in response to changes in the sales Breakeven Point (BE) – The point at which the seller has covered all costs of a unit and has not made any profit or suffered any loss. Contribution Margin (CM) – The difference between selling price (S) and variable costs (VC). Selling Price (S) – Price of goods

  21. 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

  22. 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)

  23. Problem 8-19: $5,000 $10,000 Dollar markup = S – C Percent markup on cost = = 50% Dollar markup . Percent markup on cost $5,000 .50 C = = = $10,000 Solution: $5,000 = $15,000 - $10,000 Check:

  24. Problem 8-21: $201.40C 1.40 1.40 = Cost = $14.29 = Selling price _ 1 + Percent markup on cost $20 1.40 Solution: $20 = C + .40C Check:

  25. Problem 8-24: $5.50 (P) = 68.75% $8.00 (B) Solution: a. (S) (C) (M) $13.50 - $8.50 = $5.50 dollar markup

  26. Problem 8-25: $120 = C + .30($120) $120 = C + $36 -36-36 $84 = C Solution: Check: C = Selling price x (1- Percent markup on selling price) $84 = $120 x .70

  27. Problem 8-29: $320 90 cookies Selling price per cookie = = $3.56 (100 cookies – 10%) Solution: Total cost = 100 x $2.00 = $200 Total selling price = TC + TM TS = $200 + .60($200) TS = $200 + $120 TS = $320

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