chapter twelve markups and markdowns: perishables and breakeven analysis copyright © 2014 by the...
TRANSCRIPT
Chapter Twelve
MARKUPS AND MARKDOWNS:
PERISHABLES AND BREAKEVEN ANALYSIS
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
LU 12-1: Markups 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.
4. Calculate cost when you know the selling price and percent markup on cost.
LEARNING UNIT OBJECTIVES
12-2
LEARNING UNIT OBJECTIVES
12-3
LU 12-2: 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.
1.Calculate markdowns; compare markdowns and markups.
2.Price perishable items to cover spoilage loss.
LU 12-3: Markdowns and Perishables
LEARNING UNIT OBJECTIVES
12-4
LU 12-4: Breakeven Analysis
1. Calculate contribution margin. 2. Calculate breakeven point.
TERMINOLOGY
12-5
Selling 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).
BASIC SELLING PRICE FORMULA
12-6
Assume Gap plans to sell hooded fleece jackets for $23 that cost them $18.
The markup (M) is a dollar amount, or a dollar markup.
MARKUPS BASED ON COST (100%)
12-7
Cost + Markup = Selling price
100% 27.78% 127.78%
Dollar markup is the portion
Percent markup on cost is the rate
Cost is 100% - the Base
CALCULATING DOLLAR MARKUP AND
PERCENT MARKUP ON COST
12-8
Gap 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
= $18
CALCULATING SELLING PRICE WHEN YOU KNOW COST AND PERCENT MARKUP ON
COST
12-9
Mel’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 + MS = $100 + .65($100)S = $100 + $65S = $165
Dollar MarkupSelling Price
CALCULATING COST WHEN YOU KNOW SELLING
PRICE AND PERCENT MARKUP ON COST
12-10
Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make her desired profi t, 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 = C
M = S - CM = $50 - $35.71M = $14.29
Calculate the cost:
Calculate the dollar markup:
MARKUPS BASED ON SELLING PRICE (100%)
12-11
Cost + Markup = Selling price
78.26% + 21.74% = 100%
Dollar ($) markup is the portion (P) Selling price is 100% - the
base (B)
Percent (%) markup on selling price is the rate (R)
CALCULATING DOLLAR MARKUP AND PERCENT MARKUP ON
SELLING PRICE
12-12
The 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
COMPARE MARKUP ON COST VERSUS MARKUP ON SELLING
PRICE
Percent Markup Based on Cost
Percent 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.12-13
CALCULATING SELLING PRICE WHEN YOU KNOW COST AND PERCENT
MARKUP ON SELLING PRICE
12-14
Mel’s Furniture bought a lamp that cost $100. To make Mel’s desired profi t, he needs a 65% markup on selling price. What are Mel’s selling price and his dollar markup?
M = S -- CM = $285.71 -- $100M = $185.71
S = $100 + .65S- .65S - .65S .35S = $100 .35 .35
S = $285.71
S (Selling price) = C (Cost) + M (Markup)Calculate the selling price:
Calculate the dollar markup:
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 profi t, 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 = C
Dollar Markup
MARKUP BASED ON COST VERSUS MARKUP BASED ON SELLING PRICE
(TABLE 12.1)
12-16
CONVERSION
12-17
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
MARKDOWNS
12-18
Kmart 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:
PRICING PERISHABLE ITEMS
12-19
Audrey’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 profi t?
TC (Total Cost) = 20 dozen x $1.20 = $24.00TS (Total Sales) = TC + TM (Total Markup)TS = $24 + .60($24)TS = $24 + $14.40TS = $38.40
20 dozen X .10 = 2 dozen
$38.40 = $2.13 18
Selling price per dozen
20 -- 2
Total dollar markup
Total selling price
CALCULATING A CONTRIBUTION MARGIN (CM)
12-20
Assume 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:
CALCULATING A BREAKEVEN POINT (BE)
12-21
Jones Company produces pens. The company has a fi xed 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).