BM Unit 4.1

Business Mathematics
MODULE – 4
Mathematical Decision Making

MODULE
Mathematical Decision Making

Module Description
Cost management is the process of planning and controlling the costs associated with
running a business. It includes collecting, analysing, and reporting cost information
to more effectively budget, forecast, and monitor costs. Understanding expected and
unexpected expenses. Financial life begins by choosing a field to study in college,
borrowing money, and then finding work in a career. It is best to choose a field and a
career that interests. are likely to work in that field for a long time, although pe ople
sometimes change careers later in life. The first and very important step is to work
hard to get the right education for entry and success in chosen field. There are many
other great careers and not everyone makes the average income in any one career. It
is also a good idea to talk to people who have actually worked in a career are
considering. They can tell what it is really like and give valuable suggestions. Be
prepared with a list of really good questions. There are many factors to consider in
choosing a career. What college degree will need? How long will have to go to college
and what will the costs be? How will pay for college? Where will find a job? Will have
to move to a different city? How stable is employment likely to be in that career? What
is a typical workday like? Will enjoy working in that field?
Unit 4.1
Planning and Cost Management
Unit 4.2
Accounting Applications (Bills, Exchange Rates and Currency
Exchange)
Unit 4.3
Business Statistics
Table of Contents
Unit 4.1 Planning and Cost Management
Topics
Learning Objectives
Learning Outcome
4.1.1 Marketing Applications
4.1.2 Discounts
4.1.3 Markup: Setting the Regular Price
4.1.4 Calculating the Markup Dollars
4.1.5 Calculating the Markup Percent
4.1.6 Conclusion
Summary
Activity
Activity Answer Key
References
Learning Objectives
• Explain how different marketing strategies impact business performance and

customer engagement
• Enumerate the effects of discount strategies on consumer behaviour and profit
margins
• Discuss about pricing strategy by applying markup to determine the regular
price based on cost and desired profit
• Describe the markup dollars required to achieve a specified profit margin over
the cost price
• Analyse the markup percent needed to set a selling price that meets a target
profit margin
Learning Outcome
• Analyse how different marketing strategies impact business performance and

customer engagement
• Examine the effects of discount strategies on consumer behaviour and profit
margins
• Explain about pricing strategy by applying markup to determine the regular
price based on cost and desired profit
• Discuss the markup dollars required to achieve a specified profit margin over
the cost price
• Describe the markup percent needed to set a selling price that meets a target
profit margin
Business Mathematics | Mathematical Decision Making 1

In business and economics, marketing applications encompass a broad range of

strategies businesses use to promote and sell their products or services. Key among
these strategies are the concepts of discounts and markups, which play a crucial role
in pricing decisions. Discounts are reductions from the regular price to increase sales
volume, clear out old inventory, or attract customers during special promotions. They
can be a powerful tool to boost short-term sales and enhance customer loyalty. On the
other hand, setting the regular price involves determining the appropriate markup,
which is the amount added to the cost of a product to ensure profitability. This
requires careful calculation to balance competitiveness with the need to cover costs
and generate profit. Calculating the markup involves determining the difference
between the selling price and the cost price, while calculating the markup percent
provides a percentage that represents this difference relative to the cost price. These
calculations are fundamental in ensuring that pricing strategies are both effective and
sustainable, allowing businesses to thrive in competitive markets. Understanding and
effectively applying these concepts can lead to optimised pricing strategies that
enhance profitability and market positioning.

4.1.1 Marketing Applications
Although these are career-oriented questions, there are many other reasons to pursue
an education. It helps people become more aware of what is going on around them. It
provides knowledge and critical thinking skills to better understand what is
happening in the world and assists throughout life. Employers seek individuals who
can think critically, communicate well, and get along with others. Regardless of the
field of study, a college education serves well.
It is also worthwhile to keep risk at a manageable level, for example, by ensuring

employment with a stable employer that offers benefits and by not taking on too much
debt. Reducing the risk of serious illness and associated costs and suffering can be
achieved by quitting smoking, exercising frequently, not driving while intoxicated,
and maintaining a diet rich in vegetables. Planning and budgeting can also reduce
financial risk to oneself and one's family.
Some people say it is impossible to save these days, and it probably is for those
without stable income or very high bills. Student loans make it more difficult for many
new graduates to save initially. Others may only be able to save about €50 a month
and think, “Why bother? We’d rather just eat out and go to a movie tonight.” However, it
is important to consider saving in the larger scheme of things. Think about this in
terms of life after graduating from college and once a good job is secured. Everyone
has regular, ongoing expenses, which can be called expected expenses. But many
unexpected expenses also arise.

Marketing Applications (What Is It Going to Cost Me?)

When buying an iPod, it is very important that the right price is set. The price should
be seen as fair by the buyer, cover the costs (plastics, battery, buttons, circuit boards,
headset) and expenses (employees, factory, electricity, distribution) of making the
iPod, and allow the seller’s business to make some extra money as profit so that it can
grow its business further.
For a business selling a product, paying close attention to price adjustments is crucial
because they affect profitability. Various discounts, like putting items on sale, may
increase sales while lowering the amount of profit per transaction. How does one
know where to set the balance to maximise profit overall? As a student in a business
program, mastering these concepts is essential to the success of any business. Whether
the pricing strategy is high or low, the company must ensure that it can still pay i ts
bills as a minimum requirement. This requires careful juggling of many factors. If the
company fails to manage its pricing properly, it will go bankrupt. Mastering these
concepts will help become a smarter business professional and a wiser consumer.
Shopping retail almost every day and regularly purchasing goods and services,
understanding how product pricing works makes sense of "deals." This knowledge
explains why the same product sells for two different prices at two different stores. In
this unit, learning the language of marketers to perform merchandising mathematics
involving product costs, expenses, prices, markups, markdowns, and ultimately
profitability is necessary. Once the study of the various pricing components is
complete, the various pieces of the pricing puzzle will fit together into a cohesive
merchandising environment.
Objectives:
• Figuring Out the Cost: Discounts (How Much?)
• Markup: Setting the Regular Price (Need to Stay in Business)
• Markdown: Setting the Sale Price (Everybody Loves a Sale)
• Merchandising (How Does It All Come Together?)

Why can’t retailers just set one price and stick with it? All the competing discounts
encountered at the mall can be mind-boggling, especially when searching for that
perfect Batman toy for a nephew. Walmart is running a Rollback promotion and is
offering a Batmobile for 25% off, regularly priced at €49.99. Toys R’ Us has an outlet
in the parking lot where the regular price for the same toy is €59.99, but all Batman
products are being cleared out at 40% off. Sears is having a warehouse clearance event
with the same toy priced at €64.99 but at 35% off. Additionally, it is Sears Days, which
means there is an opportunity to scratch and win a further 10% to 20% off the sale
price. Going to Dairy Queen for a Blizzard to soothe a headache while figuring things
out might be necessary.
The cost of a product is the amount of money required to obtain the merchandise. For
a consumer, the ticketed price tag on the product is the cost. For a reseller (also known
as a middleman or intermediary), what is paid to the supplier for the product is the
cost. For a manufacturer, the cost equals all of the labour, materials, and production
expenditures that went into creating the product. A discount is a reduction in the price
of a product. Consumers are bombarded with discounts all the time. Retailers use
various terms for discounts, including sales or clearance. If a business purchases a
product from a supplier, any discount it receives lowers how much the business pays
to acquire the product. When a business buys products, the price paid is the cost to
the business. Therefore, a lower price means a lower cost. If the business is the one
selling the product, any discount offered lowers the selling price and reduces revenue
per sale. Since the revenue must cover all costs and expenses associated with the
product, the lower price means reduced profits per sale. In business, expressing a
discount as a percentage of the regular price is common practice.

Fig 4.1.1: Distribution of the Product and Setting the Price Cycle
Start with distribution in the top half of the figure and work left to right. For example,
consider a manufacturer such as Kellogg Europe Inc. (which makes products like Pop -
Tarts, Eggo Waffles, and Rice Krispies). Kellogg's European production plant is
located in London, Ontario. Kellogg Europe uses various regional wholesalers to
distribute its products to the rest of Europe. Each wholesaler then resells the product
to retailers in its local trade area. However, some retailers (such as Carrefour) are very
large, and Kellogg Europe distributes directly to these organisations, bypassing the
wholesaler, as represented by the blue arrow. Finally, consumers shop at these
retailers and acquire Kellogg products.
The relationship of distribution to pricing is illustrated in the bottom half of the figure,
working right to left. For now, focus on understanding how pricing works; the
mathematics used in the figure will be explained later in this chapter. Kellogg Europe
sets a manufacturer's suggested retail price, known as the MSRP. This is a
recommended retail price based on consumer market research. Since grocery retailers
commonly carry thousands or tens of thousands of products, the MSRP helps the

retailer determine the retail price at which the product should be listed. In this case,
assume a €2.00 MSRP, which is the price consumers will pay for the product.
The retailer must pay something less than €2.00 to make money when selling the
product. Kellogg Europe understands its distributors and calculates that, to be
profitable, most retailers must pay approximately 40% less than the MSRP. Therefore,
a 40% discount is offered. If the retailer purchases directly from Kellogg, as illustrated
by the yellow arrow, the price paid by the retailer to acquire the product is €2.00 less
40%, or €1.20. Smaller retailers acquire the product from a wholesaler for the same
price. Thus, the retailer's cost equals the wholesaler's price (or Kellogg Europe's price
if the retailer purchases it directly from Kellogg).
The wholesaler's price is €1.20. Again, Kellogg Europe, knowing that the wholesaler
must pay something less than €1.20 to be profitable, offers an additional 20% discount
exclusively to the wholesaler. So, the price paid by the wholesaler to acquire the
product from Kellogg Europe is €1.20 less 20%, or €0.96. This €0.96 forms Kellogg
Europe's price to the wholesaler, which equals the wholesaler's cost.
Two Key Pricing Concepts

Companies higher up in the distribution channel pay lower prices than those farther
down the channel. Companies receive discounts off the MSRP based on their level in
the distribution system. This may result in multiple discounts, such as a wholesaler
receiving both the retailer’s discount and an additional discount for being a
wholesaler.
One organisation's price becomes the next organisation's cost (assuming the typical
distribution channel structure):
Manufacturer’s Price = Wholesaler’s Cost
Wholesaler’s Price = Retailer’s Cost
Retailer’s Price = Consumer’s Cost

4.1.2 Discounts
Discount refers to a reduction in the original price of a product or service. It is often

offered as a percentage or a fixed amount off the regular price to encourage purchases.
Discounts can be applied during sales, promotions, or as part of special offers, and
they help consumers save money while still obtaining the desired goods or services.
Types of Discounts
Discount calculations can be performed more effectively by understanding how and
why single pricing discounts and multiple pricing discounts occur. Businesses or
consumers are offered numerous types of discounts, with five of the most common
being trade, quantity, loyalty, sale, and seasonal.
Fig 4.1.2: Types of Discounts
1. Trade Discounts. A trade discount is a discount offered to businesses only

based on the type of business and its position in the distribution system (e.g.,
as a retailer, wholesaler, or any other member of the distribution system that
resells the product). Consumers are ineligible for trade discounts. In the
discussion of the figure, two trade discounts are offered. The first is a 40% retail
trade discount, and the second is a 20% wholesale trade discount. Typically, a

business that is higher up in the distribution system receives a combination of

these trade discounts. For example, the wholesaler receives both the 40% retail
trade discount and the 20% wholesale trade discount from the MSRP. The
wholesaler's cost is calculated as an MSRP of €2.00 less 40% less 20% = €0.96.
2. Quantity Discounts. A quantity discount (also called a volume discount) is a

discount for purchasing larger quantities of a certain product. Walking down
an aisle in a Real Canadian Superstore, it's common to notice shelf tags offering
quantity discounts, such as "Buy one product for €2" or "Get two products for
€3." Many Shell gas stations offer a Thirst Buster program in which customers
who purchase four Thirst Busters within a three-month period get the fifth one
free. If the Thirst Busters are €2.00 each, this is equivalent to buying five drinks
for €10.00 less a €2.00 quantity discount.
3. Loyalty Discounts. A loyalty discount is a discount that a seller gives to a

purchaser for repeat business. Usually, no time frame is specified; that is, the
offer is continually available. As a consumer, I see this regularly in marketing
programs such as Air Miles or with credit cards that offer cash-back programs.
For example, Co-op gas stations in Manitoba track consumer gasoline
purchases through a loyalty program and mail an annual loyalty discount
cheque to its customers, recently amounting to 12.5¢ per litre purchased. In
business-to-business circles, sellers typically reward loyal customers by
deducting a loyalty discount percentage, commonly ranging from 1% to 5%,
from the selling price.
4. Sale Discounts. A sale discount is a temporary lowering of the price from a

product's regular selling price. Businesses put items on sale for a variety of
reasons, such as selling excess stock or attracting shoppers. See such
promotional events all the time: LED monitors are on sale at Best Buy; Blu-Ray
discs are half off at HMV; The Brick is having a door crasher event Saturday
morning.

5. Seasonal Discounts. A seasonal discount is a discount offered to consumers

and businesses for purchasing products out of season. At the business level,
manufacturers tend to offer seasonal discounts, encouraging retailers,
wholesalers, or distributors to purchase products before they are in season.
Bombardier Inc. manufactures Ski-Doos, which are sold in Canada from
approximately November through March—a time of year when most of the
country has snow and consumers would want to buy one. To keep production
running smoothly from April through October, Bombardier could offer
seasonal discounts to its wholesalers and retailers for the coming winter season.
At a retail level, the examples are plentiful. On November 1, most retailers place
their Halloween merchandise on seasonal discounts to clear out excess
inventory, and many retailers use Boxing Day (or Boxing Week) to clear their
out-of-season merchandise

4.1.3 Markup: Setting the Regular Price
As one waits in line to purchase an Iced Caramel Macchiato at Starbucks, the pricing
menu shows that €4.99 seems like an awful lot of money for a frozen coffee beverage.
Clearly, the coffee itself doesn’t cost anywhere near that much. Gazing around the
café, the carefully applied colour scheme, the comfortable seating, the high-end
machinery behind the counter, and a seemingly well-trained barista who answers
customer questions knowledgeably come into view. Where did the money to pay for
all of this come from? Smiling, it becomes clear that the €4.99 pays not just for the
macchiato but for everything else that comes with it. The process of taking a product’s
cost and increasing it by some amount to arrive at a selling price is called markup.
This process is critical to business success because every business must ensure that it
does not lose money when it makes a sale. From the consumer perspective, the concept
of markup helps make sense of the prices that businesses charge for their products or
services. This, in turn, helps to judge how reasonable some prices are (and hopefully
to find better deals).
The Components in a Selling Price

Before learning to calculate markup, it is important to first understand the various
components of a selling price. Then, in the next unit, markup and its various methods
of calculation will become much clearer. When a business acquires merchandise for
resale, this is a monetary outlay representing a cost. When the product is resold, the
price charged must recover more than just the product cost. All the selling and
operating expenses associated with the product must also be recovered. Ultimately,
some money, or profit, needs to be made as a result of the whole process.

Formula: Selling Price=Cost+Expenses+Profit
Most people think that marking up a product must be a fairly complex process. It is
not. The Table 4.1.1 illustrates the relationship between the three components of cost,
expenses, and profits in calculating the selling price.
Table 4.1.1: Relationship Between Cost, Expenses, and Profits
S is Selling Price: Calculate what the business C is Cost: The cost is the amount of money that the
paid for the product (cost), the bills it needs to business must pay to purchase or manufacture the
cover (expenses), and how much money it needs product. If manufactured, the cost represents all
to earn (profit), arrive at a selling price by costs incurred to make the product. If purchased, this
summing the three components. number results from applying an appropriate
discount formula from Section 6.1. There is a list price
from which the business will deduct discounts to
arrive at the net price. The net price paid for the
product equals the cost of the product. If a business
purchases or manufactures a product for €10, then it
must sell the product for at least €10. Otherwise, it
fails to recover what was paid to acquire or make the
product in the first place a path to sheer disaster!
E is for Expenses: Expenses are the financial P is for Profit: Profit is the amount of money that
outlays involved in selling the product. Beyond remains after a business pays all of its costs and
just purchasing the product, the business has expenses. A business needs to add an amount above
many more bills to pay, including wages, taxes, its costs and expenses to allow it to grow. If too much
leases, equipment, electronics, insurance, utilities, profit is added, the product's price will be too high,
fixtures, décor, and many more. These expenses and customers may refuse to purchase it. If too little
must be recovered and may be calculated as: profit is added, the product's price may be too low,
a. A fixed euro amount per unit and customers may perceive the product as shoddy
b. A percentage of the product cost. For example, and once again refuse to purchase it. Many
if a business forecasts total merchandise costs of businesses set general guidelines on how much profit
€100,000 for the coming year and total business to add to various products. As with expenses, this
expenses of €50,000, then it may set a general profit may be expressed as:
guideline of adding 50% (€50,000 / €100,000) to the a. A fixed euro amount per unit
cost of a product to cover expenses. b. A percentage of the product cost
c. A percentage of the product selling price based c. A percentage of the selling price
on a forecast of future sales. For example, if a
business forecasts total sales of €250,000 and total
business expenses of €50,000, then it may set a
general guideline of adding 20% (€50,000 /
€250,000) of the selling price to the cost of a
product to cover expenses.

Steps to Solve Pricing Scenarios Involving the Three Components

Step 1: Four variables are involved. Identify the known variables. Note that the
product's cost may need to be calculated by applying a single or multiple discount
formula. Pay careful attention to expenses and profits to capture how these amounts
are calculated.
Step 2: Apply Formula and solve for the unknown variable. Assume a business pays
a net price of €75 to acquire a product. Through analysing its finances, the business
estimates expenses at €25 per unit, and it figures it can add €50 in profit. Calculate the
selling price.
Step 1: The net price paid for the product is the product cost. The known variables are
C = €75, E = €25, and P = €50.
Step 2: According to Formula 6.5, the unit selling price is S = C + E + P = €75 + €25 +
€50 = €150.
Things to Watch Out For

The most common mistake in working with pricing components occurs in the
"Understand" portion of the PUPP model. It is critical to identify and label information
correctly. Paying attention to details such as whether the expenses are expressed in
euro format or as a percentage of either cost or selling price is essential. Systematically
working through the information provided piece by piece ensures that no important
detail is missed.
Example: Setting a Price on Fashion in Dollars

Mary's Boutique purchases a dress for resale at a cost of €23.67. The owner determines that each dress
must contribute €5.42 to the expenses of the store. The owner also wants this dress to earn €6.90
toward profit. What is the regular selling price for the dress?
Plan Looking for the regular selling price for the dress, or S.
Understand What we Already Know How we Will Get There
Step 1: The unit cost of the dress and the Step 2: Apply formula S=C+E+P
unit expense and the unit profit are all
known: C = €23.67, E = €5.42, P = €6.90
Perform Step 2: S €23.67+ €5.42 + €6.90 = €35.99
Present Mary's Boutique will set the regular price of the dress at €35.99

Example: Setting the Price Using Percentage of Cost

John's Discount Store just completed a financial analysis. The company determined that expenses
average 20% of the product cost and profit averages 15% of the product cost. John's Discount Store
purchases Chia Pets from its supplier for an MSRP of €19.99 less a trade discount of 45%. What will
be the regular selling price for the Chia Pets?
Plan Looking for the regular selling price for the Chia pets, or S.
Understand What We Already Know How much We Will Get
Step 1: The gross price, Step 1 (continued): Although the cost
discount percent, expenses, and of the Chia Pets is not directly known,
profit are known: do know the MSRP (gross price) and
G = €19.99 the trade discount. The cost is equal
D%= 45% to the net price. Apply Formula
E 20% of the cost, or 0.2C Cost=Net Price
P 15% of cost, or 0.15C Step 2: To calculate the selling price,
apply Formula S=C+E+P
Perform Step 1: N = €19.99 X (100% - 45%) = €19.99 × 0.55 = €10.99 = C

Step 2: S = €10.99 +0.2C+0.15C
S€10.990.2(€10.99)+0.15(€10.99)
S€10.99 €2.20 + €1.65 = €14.84
Present John's Discount Store will sell the Chia Pet for €14.84.

Example: Setting the Price Using Percentage of Selling Price

Based on last year's results, Benthal Appliance learned that its expenses average 30% of the regular
selling price. It wants a 25% profit based on the selling price. If Benthal Appliance purchases a fridge
for €1,200, what is the regular unit selling price?
Plan Looking for the regular unit selling price for the fridge, or S.
Understand What We Already Know How We Will Get There
Step 1: The cost, expenses, and Step 2: Apply Formula S=C+E+P.
profit for the fridge are known:
E 30% of S, or 0.38
P = 25% of S, or 0.25S
C = €1,200.00
Perform Step 2: S €1,200.00 +0.3S+0.25S
S=€1,200.00 +0.55S
S= 0.55S €1,200.00
0.45S €1,200.00
S= €2,666.67
Present Benthal Appliance should set the regular selling price of the fridge at
€2,666.67

4.1.4 Calculating the Markup Dollars
Most companies sell more than one product, each of which has different price
components with varying costs, expenses, and profits. Can imagine trying to compare
50 different products, each with three different components? Would have to juggle
150 numbers! To make merchandising decisions more manageable and comparable,
many companies combine expenses and profit together into a single quantity, either
as a dollar amount or a percentage.
Formula
One of the most basic ways a business simplifies its merchandising is by combining
the dollar amounts of its expenses and profits together.
Formula - Markup Amount: M$ = E+ P
M$ is Markup Amount: Markup is taking the cost of a product and converting it into
a selling price. The markup amount represents the dollar amount difference between
the cost and the selling price.
E is Expenses: The expenses associated with the product.
P is Profit: The profit earned when the product sells.
Note that since the markup amount (MS) represents the expenses (E) and profit (P)
combined, it can substitute the variable for the markup amount which calculates the
regular selling price.
Formula – Selling Price Using Markup: S = C + M$•
M$: Markup Amount
S is Selling Price: The regular selling price of the product
C is Cost: The amount of money needed to acquire or manufacture the product. If

the product is being acquired, the cost is the same amount as the net price paid.

M$ is Markup Amount: It is the single number that represents the total of the
expenses and profits.
How It Works
Follow these steps when working with calculations involving the markup amount:
Step 1: At least two of the variables must be known. If the amounts are not directly
provided, may need to calculate these amounts by applying other discount or markup
formulas.
Step 2: The MP3 player’s expenses are €7.84, the profit is €6.00, and the cost is €26.15.
Calculate the markup amount and the selling price.
Step 1: The known variables are E = €7.84, P = €6.00, and C = €26.15. Step 2: The markup
amount is the sum of the expenses and profit, or M€ = €7.84 + €6.00 = €13.84.
Step 2 (continued): Add the markup amount to the cost to arrive at the regular selling
price, resulting in S = €26.15 + €13.84 = €39.99.
Example : Markup as a Dollar Amount

A cellular retail store purchases an iPhone with an MSRP of €779 less a trade discount of 35% and a
volume discount of 8%. The store sells the phone at the MSRP.
a. What is the markup amount?
b. If the store knows that its expenses are 20% of the cost, what is the store's profit?
Plan First of all, we need to calculate the markup amount (M€). Also, we want to
find the store's profit (P).
Understand What we Already Know How we Will Get There
Step 1: The smartphone MSRP Step 1 (continued): Calculate the cost of
and the two discounts are the iPhone by applying Formula 6.3.
known, along with the expenses Step 2: Calculate the markup amount
and selling price: using Formula M$ = E+ P.
G= €270 D%, = 35% E = 20% of Step 2 (continued): Calculate the profit
cost, or 0.2C by applying Formula 6.6, rearranging for
D%2 = 8% P.
S= €779
Perform Step 1 (continued): N = €779.00 X (100% - 35% ) X (100% - 8%) N = €779.00 ×

0.65 × 0.92 €465.84= C
Step 2: €779.00 = €465.84 + MS
€313.16 =MS
Step 2 (continued): €313.16= 0.2(€465.84) + P
€313.16=€93.17+ P
€219.99= P

Present The markup amount for the iPhone is €313.16. When the store sells the phone
for €779.00, its profit is €219.99.
The Price Components of an Apple iPhone
Cost €465.84
€779
Expenses --> €93.17
Profit --> €219.99

4.1.5 Calculating the Markup Percent

It is important to understand markup in terms of the actual dollar amount; however,
it is more common in business practice to calculate the markup as a percentage. There
are three benefits to converting the markup dollar amount into a percentage:
1. Easy comparison of different products with vastly different price levels and
costs to help see how each product contributes toward the financial success of
the company. For example, if a chocolate bar has a 50¢ markup included in a
selling price of €1, while a car has a €1,000 markup included in a selling price
of €20,000, it is difficult to compare the profitability of these items. If these
numbers were expressed as a percentage of the selling price, such that the
chocolate bar has a 50% markup and the car has a 5% markup, it is clear that
more of every dollar sold for chocolate bars goes toward gross profitability.
2. Simplified translation of costs into a regular selling price—a task that must be
done for each product, making it helpful to have an easy formula, especially
when a company carries hundreds, thousands, or even tens of thousands of
products. For example, if all products are to be marked up by 50% of the cost,
an item with a €100 cost can be quickly converted into a selling price of €150.
3. An increased understanding of the relationship between costs, selling prices,
and the gross profitability for any given product. For example, if an item selling
for €25 includes a markup on the selling price of 40% (which is €10), then we
can determine that the cost is 60% of the selling price (€15) and that €10 of every
€25 item sold goes toward gross profits. Can translate the markup dollars into
a percentage using two methods, which express the amount either as a
percentage of cost or as a percentage of selling price:
• Method 1: Markup as a Percentage of Cost. This method expresses the
markup rate using cost as the base. Many companies use this technique
internally because most accounting is based on cost information. The
result, known as the markup on cost percentage, allows a reseller to
convert easily from a product's cost to its regular unit selling price.
• Method 2: Markup as a Percentage of Selling Price. This method expresses
the markup rate using the regular selling price as the base. Many other
companies use this method, known as the markup on selling price
percentage since it allows for a quick understanding of the portion of the
selling price that remains after the cost of the product has been recovered.
This percentage represents the gross profits before the deduction of
expenses and, therefore, is also referred to as the gross profit margin.

Formula – Markup On Cost Percentage: MoC% = M€ × 100

C
MoC% is Markup on Cost Percentage: This is the percentage by which the cost of the
product needs to be increased to arrive at the selling price for the product.
M€ is Markup Amount: The total dollars of the expenses and the profits; this total is
the difference between the cost and the selling price.
C is Cost: The amount of money needed to acquire or manufacture the product. If the
product is being acquired, the cost is the same amount as the net price paid
Formula - Markup On Selling Price Percentage: MOS% = M€ × 100

S
MOS% is Markup on Selling Price Percentage: This is the percentage of the selling
price that remains available as gross profits after the cost of the product is recovered.
MS is Markup Amount: The total dollars of the expenses and the profits; this total is
the difference between the cost and the selling price.
S is Selling Price: The regular selling price of the product.
× 100 is Percent Conversion: The markup on cost is a percentage.
The steps must follow for calculations involving markup percent are almost identical
to those for working with markup dollars:
Step 1: For either formula, at least two of the variables must be known. If the amounts
are not directly provided, may need to calculate these amounts by applying other
discount or markup formulas.
Step 2: Recall that the cost of the MP3 player is €26.15, the markup amount is €13.84,
and the selling price is €39.99.

Calculate both markup percentages.

Step 1: The known variables are C = €26.15, M€ = €13.84, and S = €39.99.
Step 2: To calculate the markup on cost percentage, apply
$13.84
MoC% = X 100 =52.9254%
$26.15
In other words, must add 52.9254% of the cost on top of the unit cost to arrive at the
regular unit selling price of €39.99. Step 2 (continued): To calculate the markup on the
selling price percentage.
$13.84
MoS% = X 100 =34.6087%
$39.99
In other words, 34.6087% of the selling price represents gross profits after the business
recovers the €26.15 cost of the MP3 player

Example Markup as a Percentage

A large national retailer wants to price a Texas Instruments BAII Plus calculator at
the MSRP of €39.99. The retailer can acquire the calculator for €17.23.
a. What is the markup on cost percentage?
b. What is the markup on the selling price percentage?
Plan The task is to calculate the Markup on Cost Percentage (MoC%)

and the Markup on Selling Price Percentage (MOS%).
Understand What Already Know How Will Get There

Step 1: Step 1: The Step 1 (continued): need the markup
regular unit selling price dollars. Apply Formula MS=S−C,
and the cost are given as rearranging Ms.
follows: Step 2: To calculate markup on cost
S = €39.99, C = €17.23 percentage, apply Formula
𝑀𝑆
MoC%= X100
𝐶
Step 2 (continued): To calculate markup
on the selling price percentage, apply
Perform Step 1 (continued): €39.99= Calculator instructions
€22.76=M€ CST SEL MAR
Step 2: MoC%= 17.23 39.99 Answer:
22 .76
X100=132.0952% 56.9142
€17.23
Step 2 (continued): MOS% =
€22.76
€39.99
X100 = 56.9142%
Present The markup on cost percentage is 132.0952%. The markup on the
selling price percentage is 56.9142%.
Break-Even Pricing
In running a business, one must never forget the “bottom line.” Simply put, a clear
understanding of how products are priced will help determine when money is being
made or lost. Remember, consistent losses mean the business won't survive for long.
Statistics show that 15% of new businesses won't make it past their first year, 49% will
fail within the first five years, and a staggering 80% will close within the first decade.

Don’t become part of these statistics! By understanding markup, it's now clear what it
takes to break even in business. Break even means that while no profit is being made,
no money is being lost either—profit remains at zero.
John is trying to run an eBay business. His strategy has been to shop at local
garage sales and find items of interest at a great price. He then resells these
items on eBay. On John's last garage sale shopping spree, he only found one
item—a Nintendo Wii that was sold to him for €100. John's vehicle expenses
(for gas, oil, wear/tear, and time) amounted to €40. eBay charges a €2.00
insertion fee, a flat fee of €2.19, and a commission of 3.5% based on the
selling price less €25. What is John's minimum list price for his Nintendo
Wii to ensure that he at least covers his expenses?
Plan The goal is to determine John's break-even selling price (SBE).
Understand Step 1: John's cost for the Step 1 (continued): have four
Nintendo Wii and all of his expenses to add together that
associated expenses are as make up the E in the formula.
follows: Step 2: Formula 6.5 states S = C
C = €100.00 + E + P. Since we are looking
E (vehicle)= €40.00 for the break-even point, then P
E (insertion)€2.00 E (flat) = is set to zero, and SBE=C+ E.
€2.19
E (commission) = 3.5%(SBE-
€25.00)
Perform Step 1 (continued): E = €40.00+ €2.00+ €2.19 + 3.5% (SBE -

€25.00)
E = €44.19+0.035(SBE - €25.00)= €44.19 +0.035SBE-€0.875
E = €43.315 + 0.035SBE
Step 2: SBE= €100.00+ €43.315+0.035SBE
SBE=€143.315 + 0.035SBE

SBE-0.035SBE = €143.315 0.965SBE= €143.315

SBE= €148.51
Present For €148.51, John would cover all of his costs and expenses
but realise no profit or loss. Therefore, €148.51 is his
minimum price.
Markdown: Setting the Sale Price

Flashy signs in a retail store announce, “40% off, today only!” Excitedly purchase three
tax-free products with regular price tags reading €100, €250, and €150. The cashier
processing the transaction informs that the total is €325. are about to hand over a credit
card when something about the total makes a pause. The regular total of all items is
€500. If they are 40% off, they should receive a €200 deduction and pay only €300. The
cashier apologises for the mistake and corrects the total. Although most retail stores
use automated checkout systems, these systems are ultimately programmed by
human beings. A computer system is only as accurate as the person keying in the data.
A study by the Competition Bureau revealed that 6.3% of items at various retail stores
were scanned incorrectly. The average error spread is up to 13% around the actual
product's price Clearly, it is important for a consumer to be able to calculate
markdowns. Businesses must also thoroughly understand markdowns so that
customers are charged accurately for their purchases. Businesses must always comply
with the Competition Act of Canada, which specifically defines legal pricing practices.
If a business violates this law, it faces severe penalties.

The Importance of Markdowns

A markdown is a reduction from the regular selling price of a product, resulting in a
lower price. This lower price is called the sale price, which distinguishes it from the
selling price. Many people perceive markdowns as a sign of bad business
management decisions. However, in most situations, this is not true. Companies must
always attempt to forecast the future. In order to stock products, a reseller must
estimate the number of units that might sell in the near future for every product that
it carries. This is both an art and a science. While businesses use statistical techniques
that predict future sales with a relative degree of accuracy, consumers are fickle and
regularly change their shopping habits. Markdowns most commonly occur under four
circumstances:
1. Clearing Out Excess or Unwanted Inventory. In these situations, the business
thought it could sell 100 units; however, consumers purchased only 20 units. In
the case of seasonal inventory, such as Christmas items on Boxing Day, the
retailer wishes to avoid packing up and storing the inventory until the next
season.
2. Clearing Out Damaged or Discontinued Items. Selling a damaged product at
a discount is better than not selling it at all. When products are discontinued,
this leaves shelf space underused, so it is better to clear the item out altogether
to make room for profitable items that can keep the shelves fully stocked.
3. Increasing Sales Volumes. Sales attract customers because almost everyone
loves a deal. Though special marketing events such as a 48-hour sale reduce the
profitability per unit, by increasing the volume sold, these sales can lead to a
greater profit overall.
4. Promoting Add-On Purchases. Having items on sale attracts customers to the
store. Many times, customers will purchase the item on sale and, as long as they
are on the premises, grab a few other items that are regularly priced and very
profitable. Like many others, may have walked into Target to buy one item
but left with five instead.

4.1.6 Conclusion
Marketing applications in pricing strategies, including discounts, markup settings,

and calculations, are vital for businesses to attract customers, manage inventory, and
achieve profitability. Discounts, which reduce the original price, help clear inventory,
reward loyalty, and stimulate sales, while markup involves adding a percentage to
the cost price to determine the selling price, ensuring costs are covered and profit is
made. Calculating markup, defined as the difference between selling price and cost
price, helps set profitable prices, and markup percent, which shows the proportion of
cost price added to achieve the selling price, ensures consistent profit margins.
Mastering these strategies allows businesses to price effectively, enhance
competitiveness, and better meet customer expectations.

Summary
o Marketing applications involve using various pricing strategies to attract

customers and achieve business goals. These strategies include setting regular
prices, offering discounts, and calculating markup. Understanding these
applications helps businesses to manage inventory, boost sales, and maximise
profits by effectively responding to market demands and consumer behaviour.
o Discounts are reductions from the original price of products or services aimed
at stimulating sales, moving inventory, and encouraging customer loyalty.
Types of discounts include seasonal, quantity, and promotional discounts.
These price reductions must be strategically planned and targeted to maximise
their effectiveness in increasing sales and enhancing customer engagement.
o Setting the regular price through markup involves adding a specific percentage
to the cost price of a product to determine its selling price. This practice ensures
that businesses cover their costs and make a profit. The regular price should
balance between being competitive in the market and reflecting the product's
perceived value to customers.
o Calculating the markup is the process of determining the additional amount
added to the cost price of a product to set its selling price. The formula used
is: Markup=Selling Price−Cost Price. This calculation helps businesses price
their products to achieve desired profit margins while accounting for
production costs and overhead expenses.
o Markup percent represents the ratio of the markup to the cost price, expressed
as a percentage. This percentage allows businesses to maintain consistent
pricing strategies across different products, ensuring standardised profit
margins and facilitating easier comparison and analysis of pricing efficiency.

Activity
‘A’ runs a small retail store and you have to set prices for a new batch of products.
‘A’ have the following information:
• The cost price of a product is $50.
• Want to set a markup of 40%.
• Plan to offer a seasonal discount of 10% on the regular price.
Questions:
1. What will be the regular selling price of the product after applying the markup?
2. What will be the selling price after applying the seasonal discount?
3. What is the effective discount percent from the cost price to the final selling
price?

Activity Answer Key
1. Regular Selling Price with Markup

The cost price of the product is $50. You want to set a markup of 40%.
Markup amount = Cost price × Markup percentage
Markup amount=50 USD×0.40=20 USD
Regular selling price = Cost price + Markup amount
Regular selling price=50 USD+20 USD=70 USD
So, the regular selling price of the product is $70.
2. Selling Price after Seasonal Discount

You plan to offer a seasonal discount of 10% on the regular price.
Discount amount = Regular selling price × Discount percentage
Discount amount=70 USD×0.10=7 USD
Selling price after discount = Regular selling price - Discount amount
Selling price after discount=70 USD−7 USD=63 USD
So, the selling price after the seasonal discount is $63.
3. Effective Discount Percent from Cost Price to Final Selling Price

The cost price is $50, and the final selling price after the discount is $63.
Effective discount percent = (Cost price – final selling price) x 100
Cost Price
Effective discount percent= (50 USD−63 USD) ×100

50 USD
Effective discount percent=(−13 USD/50 USD) X 100
Effective discount percent=(−13USD/50USD)×100
Effective discount percent=−26%
This calculation shows a negative value, meaning there is no discount but rather
a markup. Let's consider the markup percentage directly.
Effective increase percent= (Final selling price−Cost price)×100
Cost price
Effective increase percent= (63 USD−50 USD)X 100
50 USD

Effective increase percent= (13) × 100

50
Effective increase percent=26%
So, the effective increase from the cost price to the final selling price is 26%.

Bibliography
External Resources
1. Mathematics Of Accounting by Arthur B. Curtis, B.C.S., C.P.A. and John H.

Cooper, B. Accts., C.P.A. Third Edition Prentice-Hall, Inc. Englewood Clifa
1987.
2. Business and Financial Mathematics by Valerie watts,2021.
E - References
• https://ecampusontario.pressbooks.pub/introbusinessmath/chapter/4-3-
markup-setting-the-regular-price/
• https://pressbooks.nscc.ca/mathbookkeeping/chapter/markup-setting-the-
regular-price/
• https://openstax.org/books/contemporary-mathematics/pages/6-2-discounts-
markups-and-sales-tax
• https://www.indeed.com/career-advice/career-development/how-to-calculate-
markup

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Business Mathematics

Mathematical Decision Making

Mathematical Decision Making

• Explain how different marketing strategies impact business performance and

• Analyse how different marketing strategies impact business performance and

Business Mathematics | Mathematical Decision Making 1

In business and economics, marketing applications encompass a broad range of

Business Mathematics | Mathematical Decision Making 2

4.1.1 Marketing Applications

It is also worthwhile to keep risk at a manageable level, for example, by ensuring

Business Mathematics | Mathematical Decision Making 3

Marketing Applications (What Is It Going to Cost Me?)

Business Mathematics | Mathematical Decision Making 4

Business Mathematics | Mathematical Decision Making 5

Business Mathematics | Mathematical Decision Making 6

Two Key Pricing Concepts

Business Mathematics | Mathematical Decision Making 7

Discount refers to a reduction in the original price of a product or service. It is often

Fig 4.1.2: Types of Discounts

1. Trade Discounts. A trade discount is a discount offered to businesses only

Business Mathematics | Mathematical Decision Making 8

business that is higher up in the distribution system receives a combination of

2. Quantity Discounts. A quantity discount (also called a volume discount) is a

3. Loyalty Discounts. A loyalty discount is a discount that a seller gives to a

4. Sale Discounts. A sale discount is a temporary lowering of the price from a

Business Mathematics | Mathematical Decision Making 9

5. Seasonal Discounts. A seasonal discount is a discount offered to consumers

Business Mathematics | Mathematical Decision Making 10

4.1.3 Markup: Setting the Regular Price

The Components in a Selling Price

Business Mathematics | Mathematical Decision Making 11

Formula: Selling Price=Cost+Expenses+Profit

Table 4.1.1: Relationship Between Cost, Expenses, and Profits

Business Mathematics | Mathematical Decision Making 12

Steps to Solve Pricing Scenarios Involving the Three Components

Things to Watch Out For

Example: Setting a Price on Fashion in Dollars

Business Mathematics | Mathematical Decision Making 13

Example: Setting the Price Using Percentage of Cost

Perform Step 1: N = €19.99 X (100% - 45%) = €19.99 × 0.55 = €10.99 = C

Business Mathematics | Mathematical Decision Making 14

Example: Setting the Price Using Percentage of Selling Price

Business Mathematics | Mathematical Decision Making 15

4.1.4 Calculating the Markup Dollars

Formula - Markup Amount: M$ = E+ P

E is Expenses: The expenses associated with the product.

P is Profit: The profit earned when the product sells.

Formula – Selling Price Using Markup: S = C + M$•

M$: Markup Amount

S is Selling Price: The regular selling price of the product

C is Cost: The amount of money needed to acquire or manufacture the product. If

Business Mathematics | Mathematical Decision Making 16

Example : Markup as a Dollar Amount

Perform Step 1 (continued): N = €779.00 X (100% - 35% ) X (100% - 8%) N = €779.00 ×

Business Mathematics | Mathematical Decision Making 17

Business Mathematics | Mathematical Decision Making 18

4.1.5 Calculating the Markup Percent

Business Mathematics | Mathematical Decision Making 19

Formula – Markup On Cost Percentage: MoC% = M€ × 100

Formula - Markup On Selling Price Percentage: MOS% = M€ × 100