Mark Up, Markdown Gross Margin

Markup, Markdown, and Gross Margin
Objectives:
At the end of the lesson, the students should be able to:
define markup and markdown;
compute for the markup and markdown;
differentiate markup from gross margin; and
explain how gross margin is used in sales.
Definition of Terms
Markup is the amount that is added to the original cost of
an item to arrive at a selling price.
Markup rate is the ratio of the markup to the original price.
Formula for the markup rate:

= %

Where is the markup rate, is the markup, and is
the original price.
Selling price (S)
= +
Formula for the Markup and the Markup Rate

If an item is bought at an original price and sold at
a higher price , then the markup and the markup rate
can be calculated using the following formulas:
=

= %

Example
1. In 2012, Allen bought a residential lot for Php 350,000. He
sells the property at its present market value, which is
Php 600,000 . How much is the markup? What is the
markup rate?
Solution:
=
= 600,000 350,000
= 250,000

= 100%

250,000
= 100%
350,000
71.43%
Deriving the formula for the selling price when its original
price and the markup rate are given:

=

By cross multiplication, =
Recall the Selling price (S) formula
S = +
By substitution, S = + 0
Simplifying by factoring , = ( + )

Deriving the formula for , =
+
Example
2. A certain shop buys and sells foreign currencies. Suppose
it buys a US dollar at Php 44, and = 2.3% markup rate.
What is the selling price of a US dollar?
Solution:
= (1 + )
= 44(1 + 0.023)
45.01
Formula in Getting the Markdown and the Markdown Rate
If an item is bought at an original price and sold at
a lower selling price , then the markdown and the
markdown rate can be calculated using the following
formulas:
=

= %

Example
3. The price of an item, which was originally sold at
425, was reduced to 357. What is the
markdown rate?
Solution:
=
= 425 357
= 68

= 100%

68
= 100%
425
= 16%
Deriving the formula for the selling price when its original
price and the markdown rate are given:

=

Recall the Markdown ( ) formula
=
By substitution, =
By transposition, =
Simplifying by factoring , = ( )


Example
4. Kaila purchased a laptop for Php 22,000. After a few
months, she purchased a new laptop and decided to sell
her old laptop at a price that is 40% lower than its original
price. How much should she sell her older laptop?
Solution:
= (1 )
= 22,000(1 0.4)
= 13,200
Formula for the Gross Margin and the Gross Margin Rate
If an item is bought at an original price and sold at a
higher price , then the gross margin and the gross margin
rate can be calculated using the following formulas:
=

= %

Compare Markup Rate and Gross Margin Rate!
Given: Original Price Php 1,000

Selling Price Php 1,250
Markup Rate Gross Margin Rate
= 1,000; = 1,250; = 1,000; = 1,250;
Markup ( ) Gross Margin ( )
= =
= 1,250 1,000 = 1,250 1,000
= 250 = 250
Markup rate Gross margin rate

= 100% = 100%

250 250
= 100% = 100%
1,000 1,250
= 25% = 20%
Example
1. Richard spent Php 2.4 million to construct a house. He
then sold it at Php 3 million. How much was the gross
margin? What was the gross margin rate?
Solution:
=
= 3,000,000 2,400,000
= 600,000
Gross margin rate

= 100%

600,000
= 100%
3,000,000
= 20%
Deriving the formula for the selling price when the original
price and the gross margin rate are given:

=

Recall the Gross rate ( ) formula
= or = +
By substitution, S = +
Solving for ,
=
Simplifying by factoring , (1 ) =


Example
2. Richard spent Php 2.4 million to construct a house. If he
wants to have a gross margin rate of 25%, how much
should he sell the house ?
Solution:

=

2,400,000
=
10.25
= 3,200,000
Example
3. Julius was requested by his manager to calculate the selling
price of an item that costs Php 600,000 to produce if their
company will apply:
a. a 20% markup rate; or
b. a 20% gross margin rate.
Solution:
a. S = (1 + r) b. S =
1
= 600,000(1 + 0.2)
600,000
= 720,000 =
1 0.2
= 750,000
1. A bookstore decides to sell a book at a price that is 30%
higher than its original cost of Php 125. How much is the
markup?
2. A computer software retailer charges a markup rate of
40%. Find the selling price of a computer game that the
retailer acquired for Php 1,600.
3. A bicycle spare parts shop pays its supplier Php 400 for a
bicycle wheel, and then sells it to a biker for Php 544.
What is the markup rate?
4. A shoe store applies a 40% markup rate on the production
cost. Find the production cost of a pair of shoes that sells
for Php 1,750.
5. Calculate the gross margin rate for an item that originally
costs Php 500 and is sold at Php 625

Mark Up, Markdown Gross Margin

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Markup, Markdown, and Gross Margin

Markup rate is the ratio of the markup to the original price.

Formula for the markup rate:

Formula for the Markup and the Markup Rate

Given: Original Price Php 1,000

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