Markups and Markdowns Perishables and Breakeven Analysis Copyright 2014 by The McGrawHill Companies Inc All rights reserved McGrawHillIrwin LU 121 Markups Based on Cost 100 Calculate dollar markup and percent markup on cost ID: 142472
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Slide1
Chapter Twelve
Markups and Markdowns: Perishables and Breakeven Analysis
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/IrwinSlide2
LU 12-1: Markups 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.Learning unit objectives
12-
2Slide3
Learning unit objectives
12-3LU 12-2: 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.
Calculate markdowns; compare markdowns and markups.
Price perishable items to cover spoilage loss.
LU 12-3: Markdowns and Perishables Slide4
Learning unit objectives
12-4LU 12-4: Breakeven Analysis
Calculate contribution margin. Calculate breakeven point.Slide5
Terminology
12-5Selling Price - The price retailers charge customers.
Cost - The price retailers pay to a manufacturer or supplier to bring goods into the store.
Markup, Margin, or Gross Profit
- The difference between the cost of bringing the goods into the store and the selling price of the goods.
Operating Expenses or Overhead
- The regular expenses of doing business, such as wages, rent, utilities, insurance, and advertising.
Net Profit or Net Income
- The profit remaining after subtracting the cost of bringing the goods into the store and the operating expenses from the sale of the goods (including any returns or adjustments).Slide6
Basic Selling Price Formula
12-6Assume Gap plans to sell hooded fleece jackets for $23 that cost them $18.
The markup (M) is a dollar amount, or a
dollar markup
.Slide7
Markups Based on Cost (100%)
12-7Cost + Markup = Selling price100% 27.78% 127.78%
Dollar markup is the portion
Percent markup on cost is the rate
Cost is
100%
- the BaseSlide8
Calculating Dollar Markup and
Percent Markup on Cost12-8Gap 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
Percent markup on cost =
Dollar markup
Cost
Check
Selling price = Cost + Markup
Cost (B) =
Dollar markup
Percent markup on cost
$5
.2778
$5
$18
$ 5
= $23 -- $18
$23 = $18 + .2778($18)
$23 = $18 + $5
=
27.78%
or .2778
= $18Slide9
Calculating Selling Price When You Know Cost and Percent Markup on Cost
12-9Mel’s Furniture bought a lamp that cost $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 = C + M
S = $100 + .65($100)
S = $100 +
$65
S =
$165
Dollar Markup
Selling PriceSlide10
Calculating Cost When You Know Selling
Price and Percent Markup on Cost12-10Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make her desired profit, Jill needs a 40% markup on cost.
What do the tennis rackets cost Jill? What is the dollar markup?
S (Selling Price) = C (Cost) + M (Markup)
$50 = C + .40(C)
$50
=
1.40C 1.40
1.40 $35.71 = CM = S - C
M = $50 - $35.71
M =
$14.29
Calculate the cost:
Calculate the dollar markup:Slide11
Markups Based on Selling Price (100%)
12-11 Cost + Markup = Selling price 78.26% + 21.74% = 100%
Dollar ($) markup is the portion (P)
Selling price is 100% - the base (B)
Percent (%) markup on selling price is the rate (R)Slide12
Calculating Dollar Markup and Percent Markup on Selling Price
12-12The 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
Check
Selling price = Cost + Markup
23 = 18 + .2174($23)
$23 = $18 + $5 $5
= $23
.2174
Selling price (B) =
Dollar markup (P)
Percent markup on SP (R)
$5
=
21.74
%
$23
Slide13
Compare markup on cost versus markup on selling price
Percent Markup Based on CostPercent Markup Based on Selling Price
$5 =
21.74
%
$23
$5
=
27.78% $18
Be careful to substitute the correct value –
selling price or cost
– into the denominator.
12-
13Slide14
Calculating Selling Price When You Know Cost and Percent Markup on Selling Price
12-14Mel’s Furniture bought a lamp that cost $100. To make Mel’s desired profit, he needs a 65% markup on selling price. What are Mel’s selling price and his dollar markup?
M = S -- CM = $285.71 -- $100
M =
$185.71
S = $100 + .65S
- .65S
- .65S
.35S = $100
.35 .35 S = $285.71S (Selling price) = C (Cost) + M (Markup)
Calculate the selling price:
Calculate the dollar markup:Slide15
Calculating Cost When You Know Selling Price and Percent Markup on Selling Price
12-15
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 do the tennis rackets cost Jill?
S (Selling price) = C (Cost) + M (Markup)
$50 = C + .40($50)
$50 = C +
$20
- $20
- $20
$30
= CDollar MarkupSlide16
Markup based on cost versus markup based on selling price (Table 12.1)
12-16Slide17
Conversion
12-17Formula 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 Slide18
Markdowns
12-18Kmart marked down an $18.00 video to $10.80. Calculate the dollar markdown and the markdown percent.
$18.00 -- $10.80 = $7.20 markdown
Dollar markdown
=
$7.20
= 40%Selling price (original) $18.00
Markdown percent =
Dollar markdown Selling price (original)
Dollar markup = Original selling price – New selling price
Example:Slide19
Pricing Perishable Items
12-19Audrey’s Bake Shop baked 20 dozen bagels. Audrey expects 10% of the bagels to become stale and not salable. The bagels cost Audrey $1.20 per dozen. Audrey wants a 60% markup on cost. What should Audrey charge for each dozen of bagels so she will make her profit?
TC (Total Cost) = 20 dozen x $1.20 = $24.00
TS (Total Sales) = TC + TM (Total Markup)
TS = $24 + .60($24)
TS = $24 + $14.40
TS = $38.40
20 dozen X .10 = 2 dozen
$38.40
= $2.13
18
Selling price per dozen
20 -- 2
Total dollar markup
Total selling priceSlide20
Calculating a Contribution Margin
(CM)12-20Assume Jones Company produces pens that have a selling price (S)
of $2.00 and a variable cost (VC) of $.80. We calculate the contribution margin (CM) as follows.
CM
= $2.00
(S)
-- $.80
(VC)
CM
= $1.20
Contribution margin (CM)
= Selling price (S) – Variable cost (VC)Example:Slide21
Calculating a Breakeven Point (BE)
12-21Jones 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)
=
Fixed costs
(FC)
Contribution margin (CM)
Breakeven point (BE) =
$60,000 (FC) = 50,000 units (pens) $2.00 (S) -
$.80
(VC)
Example:
At 50,000 units (pens), Jones Company is just covering its costs. Each unit after 50,000 brings in a profit of $1.20 (CM).