Markup Markdown Inventory Management Madam Zakiah Hassan 8

Markup, Markdown, Inventory Management Madam Zakiah Hassan 8 March 2012

Situation You are the seller -shirt. You get the whole sale price at RM 200 per 20 pieces of t-shirt. How are you going to sell the t-shirt, so that you get a profit from the t-shirt sold. So, here you can apply word ‘markup’ or ‘markdown to your busines.

What is markup • The practice of adding a constant percentage to the cost of price if an item to arrive at its selling price. • Or, a raise in the price of an item for sale • the cost price is the original price of the goods paid by the retailer. So the retailer must add an additional amount called mark up to the cost if the good

Mark up • Mark up = gross profit/gross margin – retail price + cost price • R = C + M – Where, R is retail price – Where, C is cost price – Where, M is mark up

Markup percentage • Mark up express as in percentage. It can be – (a) mark up per cent based on retail price = %Mr • %Mr = M / R * 100% – (b ) mark up per cent based on cost price = %Mc • %Mc = M / C * 100%

Markup down • Sale at lower price or lower cost price

Mark down • Difference between the old retail price – new retail price. – Where MD = OP – NP – Mark down percentage =%MD = MD /OP * 100%

Profit & Loss • In reality, not all business make money. • A business incurred operating expenses, such as rent, lighting, wages, commissions, bonus and other expenses. • The mark up must be able to cover the operating expenses. • If M > OE - net profit • If M < OE – loss • If M = OE – break even ( BEP = C + OE)

What is overhead expenses (OE) • Overhead is the operating expenses of a business, including the costs of rent, utilities, interior decoration, and taxes, exclusive of labor and materials

Mark up equation • Retail price = cost + mark up • Retail price = cost + net profit + operating expenses • R = C + NP + OE

Question 1. A computer software retailer used a markup rate of 40%. Find the selling price of a computer game that cost the retailer RM 25. {RM 35} 2. A golf shop pays its wholesaler $40 for a certain club, and then sells it to a golfer for $75. What is the markup rate? {87. 5%} 3. A shoe store uses a 40% markup on cost. Find the cost of a pair of shoes that sells for RM 63. {RM 45} 4. The mark down per cent on a TV set is 10%. If the new retail price is RM 800, find the old retail price. {RM 888. 88}

Question 5. A Computer table is purchased for RM 200. Operating expenses amount to 10% of the cost. If the retailer wants a 20% net profit based on cost, find (a) the retail price, (b) the gross profit, (c ) the net profit, (d) the breakeven price, (e ) the maximum markdown per cent that can be offered so that no loss is incurred?