Markups and Markdowns: Perishables and Breakeven Analysis

Chapter 8
Markups and Markdowns:

Perishables and Breakeven
Analysis
McGraw-Hill/Irwin ©2011 The McGraw-Hill Companies, All Rights Reserved

#8 Markups and Markdowns; Perishables
and Breakeven Analysis
Learning Unit Objectives
LU8.1 Markup 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
8-2 price and percent markup on cost
LU8.2 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
8-3 selling price and vice versa
LU8.3 Markdowns and Perishables
1. Calculate markdowns; compare markdowns

and markups
2. Price perishable items to cover spoilage loss
8-4
LU8.4 Breakeven Analysis
1. Calculating Contribution Margin (CM)

2. Calculating a Breakeven Point (BE)
8-5
Terminology
Cost - The price retailers
Selling Price - The price
pay to a manufacturer or
retailers charge customers
supplier
Markup, margin, or gross Operating expenses or

profit - The difference between overhead - The regular
the cost of bringing the goods expenses of doing business
into the store and the selling such as rent, wages,
price
utilities, etc.
Net profit or net income - The profit remaining after

subtracting the cost of bringing the goods into the
store and the operating expenses
8-6
Basic Selling Price Formula
Selling price (S) = Cost (C) + Markup (M)
$23 $18 - Price

Jean paid to bring $5 - Dollars
Jeans to
into store cover
operating
expenses and
make a profit
8-7
Markups Based on Cost (100%)
Dollar markup is
the portion
Cost + Markup = Selling Price

100% 27.78% 127.78%
Cost is 100% Percent

- the Base markup on
cost is the rate
8-8
Calculating Dollar Markup and
Percent Markup on Cost
• Gap buys fleece jackets
for $18. They plans to sell
Dollar Markup = Selling Price - Cost
them for $23. What is Gap’s
$5 = $23 - $18 markup? What is the
percent markup on cost?
Percent Markup on Cost = Dollar Markup

Cost
$5 = 27.78%
$18
Check: Selling Price = Cost + Markup

23 = 18 + .2778(18) Cost (B) = Dollar Markup
Percent markup on cost
$23 = $18 + $5
$5 = $18
8-9 .2778
Calculating Selling Price When You Know
Cost and Percent Markup on Cost
• Mel’s Furniture bought
a lamp for $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 + M
S = $100 + .65($100)
S = $100 + $65
S = $165 Dollar Markup
8-10
Calculating Cost When You Know Selling
Price and Percent Markup on Cost
• Jill Sport, owner of Sports, Inc.,
sells tennis rackets for $50. To
make her desired profit, Jill needs
a 40% markup on cost. What do
the tennis rackets cost Jill? What
is the dollar markup?
S = C + M
$50 = C + .40(C) M = S - C
$50 = 1.40C M = $50 - $35.71
1.40 1.40 M = $14.29
$35.71 = C
8-11
Markups Based on Selling Price (100%)
Dollar ($)
markup is the
portion (P)
Cost + Markup = Selling Price
78.26% + 21.74% = 100%
Selling Price
is 100% - the
Base (B)
Percent (%)
markup on
selling price is the
rate (R)
8-12
Calculating Dollar Markup and Percent Markup
on Selling Price
• The cost to Gap for a hooded
fleece jacket is for $18; the
Dollar Markup = Selling Price - Cost
store then plans to sell them
$5 = $23 - $18 for $23. What is Gap’s dollar
markup? What is its percent
markup on selling price?
Percent Markup on Selling Price = Dollar Markup
Selling Price
$5 = 21.74%
$23
Check: Selling Price = Cost + Markup

Selling Price = Dollar Markup
23 = 18 + .2174($23) Percent markup on SP
$23 = $18 + $5
$5 = $23
8-13 .2174
Calculating Selling Price When You Know
Cost and Percent Markup on Selling Price
• Mel’s Furniture bought a lamp
for $100. To make desired profit,
he needs a 65% markup on selling
price. What are Mel’s selling
price and dollar markup?
S = C + M
S = $100 + .65(S)
M = S - C -.65s - .65S
.35s = $100
M = $285.71 - $100
M = $185.71 .35 .35
S = $285.71
8-14
Calculating Cost When You Know Selling Price
and and Percent Markup on Selling Price
• Jill Sport, owner of Sports, Inc.,

sells tennis rackets for $50. To
make her desired profit, Jill needs a
40% markup on selling price.
What is the dollar markup? What
do the tennis rackets cost Jill?
S = C + M
$50 = C + .40($50)
$50 = C + $20
-20 - $20 Dollar Markup
$30 = C
8-15
Conversion
Formula for Converting Formula for Converting Percent

Percent Markup on Cost to Markup on Selling Price to
Percent Markup on Selling Percent Markup on Cost
Price
Percent markup on cost Percent markup on selling price

1+ Percent markup on cost 1- Percent markup on selling price
.2174 = 27.78%
.2778 = 21.74% 1-.2174
1+.2778
8-16
Markdowns
Markdown percent = Dollar markdown

Selling price (original)
Sears marked down a $18 tool set

to $10.80. What are the dollar
markdown and the markdown
percent?
$10.80 $18-$10.80
$7.20 Markdown
$18.00
40%
8-17
Pricing Perishable Items
TC = 300lb. X $.14 = $42.00

TS = TC + TM • Alvin’s vegetable stand
TS = $42 + .60($42) grew 300 pounds of
TS = $67.20 tomatoes. He expects 5%
of the tomatoes to become
spoiled and not salable.
300 lbs. X .05 = 15lbs The tomatoes cost Alvin
Selling $.14 per pound and he
$67.20 = $.24 Price per wants a 60% markup on
285lbs. cost. What price per
pound
pound should Alvin charge
for the tomatoes?
300lbs. - 15lbs
8-18
Calculating a Contribution Margin (CM)
Contribution margin (CM) = Selling Price (S) – Variable cost (VC)
• Assume Jones Company

produces pens that have a
selling price (S) of $2 and
a variable cost (VC) of
$.80. Calculate the
contribution margin
CM = $2,00 (S) - $.80 (VC)

CM = $1.20
8-19
Calculating a Breakeven Point (BE)
Breakeven point (BE) = Fixed Costs (FC)
Contribution margin (CM)
• Jones Company produces

pens. The company has
fixed cost (FC) of $60,000.
Each pen sells for $2.00
with a variable cost (VC)
of $.80 per pen.
Breakeven point (BE) = $60,000 (FC) = 50,000

$2.00 (S) - $.80 (VC)
8-20

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Chapter 8

Markups and Markdowns:

McGraw-Hill/Irwin ©2011 The McGraw-Hill Companies, All Rights Reserved

1. Calculate markdowns; compare markdowns

1. Calculating Contribution Margin (CM)

Markup, margin, or gross Operating expenses or

Net profit or net income - The profit remaining after

Selling price (S) = Cost (C) + Markup (M)

$23 $18 - Price

Cost + Markup = Selling Price

Cost is 100% Percent

Percent Markup on Cost = Dollar Markup

Check: Selling Price = Cost + Markup

Check: Selling Price = Cost + Markup

• Jill Sport, owner of Sports, Inc.,

Formula for Converting Formula for Converting Percent

Percent markup on cost Percent markup on selling price

Markdown percent = Dollar markdown

Sears marked down a $18 tool set

TC = 300lb. X $.14 = $42.00

• Assume Jones Company

CM = $2,00 (S) - $.80 (VC)

• Jones Company produces

Breakeven point (BE) = $60,000 (FC) = 50,000

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