Why Businesses Use Markup Why the markup Cover
Why Businesses Use Markup? Why the markup? ◦ Cover businesses operating expenses ◦ Cover Business Taxes ◦ Make a profit
Gross Profit = your Markup amount When something is a gross profit, what does that GROSS mean? When is it net? ◦ In business Net profits is after you take out your expenses and taxes
Overhead Expenses ◦ Overhead expenses ongoing business expenses not directly attributed to creating a product or service. Also known as Operating Expenses Include wages and salaries of employees, rent, utility charges, and taxes, supplies, Cost advertising, Expenses
Overhead Expenses When calculating your markup, you want your profit to cover operating expenses and still make a profit Overhead is an estimated percentage of gross sales – usually from last year’s budget Net Profit: you made more money than you spent ◦ When your Markup amount > Overhead expense Net Loss: You spent more than you made ◦ If Markup amount < Overhead expense
Formula: Retail price * Overhead Percentage Your total overhead expenses are 15% of total gross sales of $1 million dollars. If you have an item that costs $1000 and sells for $1500: $1500 What is your Retail Price? $500 ($1500$1000) What is your Gross Profit Amount? What is your Operating Expenses $225 ($1500 X. 15) Amount? Do you have a Net Profit or Net Loss? Net Profit of
Example: Overhead Your total overhead expenses are 35% of total gross sales. If you have an item that costs $1000 and sells for $1333: What is your Retail Price? $1333 What is your Gross Profit $333 ($1333 -$1000) Amount? What is your Operating Expenses $466. 55 ($1333 X. 35) Amount? Do you have a Net Profit or Net Loss? Net Loss of $133. 55 (333 -466. 55 = $133. 55)
Who Pays Sales Tax? Consumers pay sales tax Do Businesses pay sales tax? ◦ No sales tax on products that they purchase to resell to consumers ◦ Non-profit businesses (like schools) that are tax exempt do not get charged taxes ◦ Sales tax is charged to consumers by businesses when they purchase the products for personal use. Supplies needed to operate a business
Sales Tax: additional amount added to the retail price of a product(s) collected by retailers and paid to state governments ◦ Charged on price of goods, not shipping most often
Now lets practice on your own Making Sense of Markups Worksheet
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