Chapter 08. Markups and Markdowns: Perishables and Breakeven Analysis. Copyright 2011 by the McGrawHill Companies, Inc. All rights reserved.


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1 Chapter 08 Markups and Markdowns: Perishables and Breakeven Analysis McGrawHill/Irwin Copyright 2011 by the McGrawHill Companies, Inc. All rights reserved.
2 #8 LU8.1 Markups and Markdowns; Perishables and Breakeven Analysis Learning Unit Objectives Markup Based on Cost (100%) 1. Calculate dollar markup and percent markup on cost 2. Calculate selling price when you know cost and percent markup on cost 3. 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 LU Learning Unit Objectives Markup Based on Selling Price (100%) 1. Calculate dollar markup and percent markup on selling price 2. Calculate selling price when dollar markup and percent markup on selling price are known 3. Calculate selling price when cost and percent markup on selling price are known 4. Calculate cost when selling price and percent markup on selling price are known 5. Convert from percent markup on cost to percent markup on selling price and vice versa
4 #8 Markups and Markdowns; Perishables and Breakeven Analysis LU8.3 Learning Unit Objectives Markdowns and Perishables 1. Calculate markdowns; compare markdowns and markups 2. Price perishable items to cover spoilage loss 84
5 #8 Markups and Markdowns; Perishables and Breakeven Analysis LU8.4 Learning Unit Objectives Breakeven Analysis 1. Calculating Contribution Margin (CM) 2. Calculating a Breakeven Point (BE) 85
6 Terminology Cost  The price retailers pay to a manufacturer or supplier Selling Price  The price retailers charge customers Markup, margin, or gross profit  The difference between the cost of bringing the goods into the store and the selling price Operating expenses or overhead  The regular expenses of doing business such as rent, wages, utilities, etc. Net profit or net income  The profit remaining after subtracting the cost of bringing the goods into the store and the operating expenses 86
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 87
8 Markups Based on Cost (100%) Dollar markup is the portion Cost + Markup = Selling Price 100% 27.78% % Cost is 100%  the Base Percent markup on cost is the rate 88
9 Calculating Dollar Markup and Percent Markup on Cost Dollar Markup = Selling Price  Cost $ 5 = $23  $18 Gap buys fleece jackets for $18. They plans to sell them for $23. What is Gap s markup? What is the percent markup on cost? Percent Markup on Cost = Dollar Markup Cost $5 = 27.78% $18 Check: Selling Price = Cost + Markup 23 = (18) $23 = $18 + $5 89 Cost (B) = Dollar Markup Percent markup on cost $5 = $
10 Calculating Selling Price When You Know Cost and Percent Markup on Cost Mel s Furniture bought a lamp for $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) S = $100 + $65 S = $165 Dollar Markup 810
11 Calculating Cost When You Know Selling Price and Percent Markup on Cost Jill 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 = C + M $50 = C +.40(C) $50 = 1.40C $35.71 = C M = S  C M = $50  $35.71 M = $
12 Markups Based on Selling Price (100%) Cost + Markup = Selling Price Dollar ($) markup is the portion (P) 78.26% % = 100% Percent (%) markup on selling price is the rate (R) Selling Price is 100%  the Base (B) 812
13 Calculating Dollar Markup and 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 The cost to Gap for a hooded fleece jacket is for $18; the store then plans to sell them for $23. What is Gap s dollar markup? What is its percent markup on selling price? 813 Check: Selling Price = Cost + Markup 23 = ($23) $23 = $18 + $5 Selling Price = Dollar Markup Percent markup on SP $5 = $
14 Calculating Selling Price When You Know Cost and Percent Markup on Selling Price Mel s Furniture bought a lamp for $100. To make desired profit, he needs a 65% markup on selling price. What are Mel s selling price and dollar markup? 814 M = S  C M = $ $100 M = $ S = C + M S = $ (S) .65s .65S.35s = $ S = $285.71
15 Calculating Cost When You Know Selling Price and Percent Markup on Selling Price S = C + M $50 = C +.40($50) $50 = C + $ $20 $30 = C 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? Dollar Markup 815
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% 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%
17 Equivalent Markup Percent markup on Selling Price Percent markup on cost (round to nearest tenth percent)
18 Markdowns Markdown percent = Dollar markdown Selling price (original) $10.80 Sears marked down a $18 tool set to $ What are the dollar markdown and the markdown percent? $7.20 $ % $18$10.80 Markdown 818
19 Pricing Perishable Items TC = 300lb. X $.14 = $42.00 TS = TC + TM TS = $ ($42) TS = $ lbs. X.05 = 15lbs $67.20 = $ lbs. 300lbs.  15lbs Selling Price per pound 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? 819
20 Break Even Analysis  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 Contribution Margin (CM) The difference between selling price (S) and variable costs (VC). 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. Selling Price (S) Price of goods 820
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 = $
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) 822
23 Problem 819: Solution: $3,000 Dollar markup = S C Percent markup on cost = $12,000 = 25% $3,000 = $15,000  $12,000 Check: C = Dollar markup. = $3,000 = $12,000 Percent markup on cost
24 Problem 821: Solution: $20 = C +.40C $20 = 1.40C $14.29 = C Check: Cost = Selling price _ 1 + Percent markup on cost 824 $14.29 = $
25 Problem 824: Solution: Markup = $ $.42 = $1.08 $1.08/.42 = = % Check: $1.50 = $ (.42) $1.50 = $ $1.50 = $
26 Problem 825: Solution: $120 = C +.30($120) $120 = C + $ $84 = C Check: C = Selling price x (1 Percent markup on selling price) $84 = $120 x
27 Problem 829: Solution: Total cost = 100 x $2.00 = $200 Total selling price = TC + TM TS = $ ($200) TS = $200 + $120 TS = $320 Selling price per cookie = $320 = $ cookies (100 cookies 10%) 827
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