Presentation is loading. Please wait.

Presentation is loading. Please wait.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-1 Chapter 8 Mathematics of Pricing STARTEXIT.

Similar presentations


Presentation on theme: "© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-1 Chapter 8 Mathematics of Pricing STARTEXIT."— Presentation transcript:

1

2 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-1 Chapter 8 Mathematics of Pricing STARTEXIT

3 8-2 Chapter Outline 8.1Markup and Markdown 8.2Profit Margin 8.3Series and Trade Discounts 8.4Depreciation Chapter Summary Chapter Exercises

4 8-3 8.1Markup and Markdown A very large part of the business conducted in this world is a matter of buying things and then turning around and selling them to someone else at a profit. The price a business pays for an item is called the wholesale price or cost. The price a business sells the item for is known as a retail price.

5 8-4 8.1Markup and Markdown One common method used for setting the selling price for an item is markup based on cost. To determine a price with this method, we simply take the cost of the item and add on a pre- determined percent of the items cost.

6 8-5 8.1Markup and Markdown FORMULA 8.1.1 Markup Based on Cost P = C(1 + r) where P represents the SELLING PRICE C represents the COST and r represents the PERCENT MARKUP

7 8-6 8.1Markup and Markdown Example 8.1.1 Problem –An auto mechanic charges a 40% markup based on cost for parts. What would the price be for an air filter that cost him $14.95? What is the dollar amount of his markup on this item? Solution P = C(1 + r) P = $14.95(1 + 40%) = $20.93 Markup = $20.93 -- $14.95 = $5.98

8 8-7 8.1Markup and Markdown Example 8.1.2 Problem –Hegels Bagels and Vienna Coffeehouse sells souvenir coffee mugs for $7.95. The markup based on cost is 65%. Find (a) the cost of each mug and (b) the dollar amount of the markup. Solution P = C(1 + r) P = $7.95(1 + 65%) = $4.82 Markup = $7.95 -- $4.82 = $3.13

9 8-8 8.1Markup and Markdown Example 8.1.3 Problem –An electronics retailer offers a computer for sale for $1,000. The retailers cost is $700. What is the markup percent? Solution P = C(1 + r) $1,000 = $700(1 + r) r = 0.4285714 = 42.86%

10 8-9 8.1Markup and Markdown We are all familiar with the idea of prices being marked down as part of a sale or some other promotion, for example. To calculate a marked-down price, we simply apply the percent the price is to be marked down to the original price, and then subtract.

11 8-10 8.1Markup and Markdown FORMULA 8.1.2 Markdown MP = OP(1 – d) where MP represents the MARKED-DOWN PRICE OP represents the ORIGINAL PRICE d represents the PERCENT MARKDOWN

12 8-11 8.1Markup and Markdown Example 8.1.4 Problem –At its Presidents Day Sale, a furniture store is offering 15% off everything in the store. What would the sale price be for a sofa that normally sells for $1,279.95? What is the dollar amount of the markdown? Solution MP = OP(1 – d) MP = $1,279.95(1 – 15%) = $1,087.96

13 8-12 8.1Markup and Markdown Example 8.1.5 Problem –Hals Hardware Haven is having a going-out- of-business sale. According to its ad, everything in the store is marked down 40%. If a set of patio lights is offered at a marked- down price of $29.97, what was the original price? How much of a dollar savings is this versus the original price? Solution MP = OP(1 – d) $29.97 = OP(1 – 40%) OP = $49.95

14 8-13 8.1Markup and Markdown Example 8.1.6 Problem –At the end of the summer, a backyard play set that usually sells for $599.95 is marked down to $450. What is the markdown percent? Solution MP = OP(1 – d) $450 = $599.95(1 – d) d = 0.2499374 = 24.99%

15 8-14 8.1Markup and Markdown Example 8.1.7 Problem –Gemmas Gemstone Gewelry bought a necklace for $375. In the store, Gemma marked up this price by 20%. Several months later, when the necklace still had not sold, she decided to mark down the price by 20%. What was the marked down price? Solution –Markup P = C(1 + r) P = $375(1 + 20%) = $450 –Markdown MP = OP(1 – d) MP = $450(1 – 20%) = $360

16 8-15 8.1Markup and Markdown Example 8.1.8 Problem –If prices are calculated with a 35% markup based on cost, what is the percent that those prices should be marked down to get back to their original cost? Solution –We dont know what sort of things we are pricing here, much less the dollar amounts of those things. However, since we are working with percents, the actual dollar amounts dont really matter. We choose a convenient cost of $100. P = C(1 + r) P = $100(1 + 35%) P = $135 MP = OP(1 – d) $100 = $135(1 – d) d = 25.93%

17 8-16 Section 8.1 Exercises Problem 1: Markup Based on Cost Problem 2: Markdown

18 8-17 Problem 1 Wal-Mart charges $2.35 for a carton of eggs. If the price is based on a 45% markup based on cost, how much did they pay the chicken farmer? CHECK YOUR ANSWER

19 8-18 Solution 1 Wal-Mart charges $2.35 for a carton of eggs. If the price is based on a 45% markup based on cost, how much did they pay the chicken farmer? P = C(1 + r) $2.35 = C(1 + 45%) $2.35 = C x 1.45 C = $1.62 BACK TO GAME BOARD

20 8-19 Problem 2 You bought an evening gown for $35, what a deal! If the markdown percent was 70%, what was the original price? CHECK YOUR ANSWER

21 8-20 Solution 2 You bought an evening gown for $35, what a deal! If the markdown percent was 70%, what was the original price? $35 = OP(1 – 70%) $35 = OP x 0.30 OP = $116.67 BACK TO GAME BOARD

22 8-21 8.2Profit Margin The gross profit on an item is the difference between what the item cost and what it sold for. Of course, the business of buying and selling is not that simple. Every store has to take on plenty of other overhead expenses such as rent, utilities, salaries, finance costs, advertising expenses, etc. Gross profit does not account for those. The net profit, on the other hand, is the profit made after taking into account all of the expenses of doing business. The profit margin is the profit expressed as a percent of the selling price.

23 8-22 8.2Profit Margin Example 8.2.1 Problem –Sallys Fashion Paradise sells a dress that cost $45 for $65. Find the gross profit margin from this sale. Solution –Gross Profit = $65 -- $45 = $20 –Gross Profit Margin = $20/$65 = 0.3077 = 30.77% Example 8.22 Problem –Sallys Fashion Paradise sells womens purses, pricing them with a 35% gross profit margin. If a purse is priced at $72, what is the gross profit in that price? Solution –Gross Profit = 35% x $72 = $25.20

24 8-23 8.2Profit Margin Example 8.2.3 Problem –Last year, sales at Sallys Fashion Paradise totaled $219,540. The cost of the items sold was $147,470. What was the overall gross profit margin for the year? Solution –Total Gross Profit = $219,540 -- $147,470 = $72,070 –Gross Profit Margin = $72,070/$219,540 = 32.83%

25 8-24 8.2Profit Margin Example 8.2.4 Problem –Last year, Sallys Fashion Paradise had overhead expenses totaling $63,073. Find (a) expenses as a percent of sales and (b) the net profit margin. Solution –$63,073/$219,540 = 28.73% –Net Profit = $72,070 -- $63,073 = $8,997 –Net Profit Margin = $8,997/$219,540 = 4.10%

26 8-25 8.2Profit Margin Example 8.2.5 Problem –Two years ago, Sallys shop had sales totaling $153,670. The cost of the goods sold was $118,945, and her expenses totaled $57,950. Find her overall (a) gross profit margin and (b) net profit margin for that year. Solution –Gross Profit = $153,670 -- $118,945 = $34,725 –Gross Profit Margin = $34,725/$153,670 = 22.60% –Net Profit = $34,725 -- $57,950 = -$23,225 –Net Profit Margin = -$23,225/$153,670 = -15.11%

27 8-26 8.2Profit Margin Example 8.2.6 Problem –In the year in which the dress sold for $65, the total sales were $219,540 and expenses were $63,073. If expenses are allocated in proportion to sales, how much of the stores expenses is attributable to that dress? Solution –$65/$219,540 = 0.02961% –0.02961% x $63,073 = $18.67

28 8-27 8.2Profit Margin Determining a price by using a target gross margin is called markup based on selling price, in contrast to markup based on cost. If we know the items cost, and if we know our markup percent based on cost, calculating the selling price is fairly straightforward. Profit margin, though, is a percent of the selling price. Obviously, we dont know the selling price before we know the selling price!

29 8-28 8.2Profit Margin FORMULA 8.2.1 Markup Based on Selling Price C = SP(1 – r) where C represents the ITEMS COST SP represents the SELLING PRICE and r represents the GROSS PROFIT MARGIN

30 8-29 8.2Profit Margin Example 8.2.7 Problem –Determine the selling price of an item costing $45 in order to have a 35% gross profit margin. Solution –C = SP(1 – r) $45 = SP(1 – 35%) SP = $69.23

31 8-30 8.2Profit Margin Example 8.2.8 Problem –A cooperative market allows its members to place special orders for items they want to buy in bulk. The price the member pays is based on an 8% markup on selling price. –Lynne ordered a case of protein bars, for which the markets cost was $24.17. How much will she pay for this order? C = SP(1 – r) $24.17 = SP(1 – 8%) SP = $26.27

32 8-31 Section 8.2 Exercises Problem 1: Gross Profit Margin Problem 2: Net Profit Margin Problem 3: Markup Based on Selling Price Problem 4: Grab Bag

33 8-32 Problem 1 Harveys sells watermelons for $4.99 each, even though farmers sell them for $2.00 each. What is the gross profit margin? CHECK YOUR ANSWER

34 8-33 Solution 1 Harveys Supermarket sells watermelons for $4.99 each, even though farmers sell them for $2.00 each. What is the gross profit margin? Gross Profit = $4.99 -- $2.00 = $2.99 Gross Profit Margin = $2.99/$4.99 = 59.92% BACK TO GAME BOARD

35 8-34 Problem 2 Harveys Supermarket had overhead expenses totaling $49,265, the cost of items sold was $153,076, and total sales were $240,543. What is the net profit margin? CHECK YOUR ANSWER

36 8-35 Solution 2 Harveys Supermarket had overhead expenses totaling $49,265, the cost of items sold was $153,076, and total sales were $240,543. What is the net profit margin? Net Profit = $240,543 -- $153,076 -- $49,265 = $38,202 Net Profit Margin = $38,202/$240,543 = 15.88% BACK TO GAME BOARD

37 8-36 Problem 3 Determine the selling price of an item costing $395.72 in order to have a 40% gross profit margin. CHECK YOUR ANSWER

38 8-37 Solution 3 Determine the selling price of an item costing $395.72 in order to have a 40% gross profit margin. C = SP(1 – r) $395.72 = SP(1 – 40%) $395.72 = SP x 0.60 SP = $659.53 BACK TO GAME BOARD

39 8-38 Problem 4 You purchased a set of dishes for $67.45. If the markup based on selling price is 41%, what was the items cost? CHECK YOUR ANSWER

40 8-39 Solution 4 You purchased a set of dishes for $67.45. If the markup based on selling price is 41%, what was the items cost? C = SP(1 – r) C = $67.45(1 – 41%) C = 39.80 BACK TO GAME BOARD

41 8-40 8.3Series and Trade Discounts Merchants are normally free to set prices as they see fit, basing their pricing decisions on costs, profit targets, and competition. Still, many manufacturers do set suggested prices for their products. The suggested price for an item is known as a list price or manufacturers suggested retail price (MSRP). When a product has a list price, it is not uncommon for the item to be sold to a merchant on the basis of a discount to the list price. This is known as a trade discount.

42 8-41 8.3Series and Trade Discounts Example 8.3.1 Problem –Ampersand Computers bought 12 computers from the manufacturer. The list price is $895.00 and the manufacturer offered a 25% trade discount. How much did Ampersand pay for the computers? Solution $895.00 x 25% = $671.25 12 x $671.25 = $8,055.00

43 8-42 8.3Series and Trade Discounts Example 8.3.2 Problem –Samirs House of Gadgets placed an order for 500 thingmies (list price $4.95), 350 jimmamathings (list price $8.95), and 800 hoozamawhatzits (list price $17.99). The manufacturer offers a 27 ½% trade discount and includes shipping in its prices. Find the total due on the invoice for this order.

44 8-43 8.3Series and Trade Discounts Example 8.3.2 Cont. Solution QuantityProduct #DescriptionMSRPTotal 500 Thingmies $4.95$2,475.00 350 Jimmamathings $8.95$3,132.50 800 Hoozamawhatzits $17.99$14,392.00 Subtotal $19,999.50 LESS: 27.5% discount ($5,499.86) Net $14,499.64 PLUS: Freight $00.00 Total due $14,499.64

45 8-44 8.3Series and Trade Discounts FORMULA 8.3.1 Trade Discounts NP = LP(1 – d) where NP represents the NET (DISCOUNTED) PRICE LP represents the LIST PRICE d represents the PERCENT DISCOUNT

46 8-45 8.3Series and Trade Discounts Example 8.3.4 Problem –What is the net cost for each jimmamathing in the previous example? Solution NP = LP(1 – d) NP = $8.95(1 – 27.5%) NP = $6.49

47 8-46 8.3Series and Trade Discounts Example 8.3.5 Problem –Samir realized that he forgot to order 400 doohickeys. He called the manufacturer and was given a price of $2,652 for them. He did not ask for the list price but realizes that he needs to know it now. What is the list price for a doohickey? Solution $2,652/400 = $6.63 NP = LP(1 – d) $6.63 = LP(1 – 27.5%) LP = $9.14

48 8-47 8.3Series and Trade Discounts Example 8.3.6 Problem –A manufacturer offers a 30% trade discount. If the merchant sells items at a 10% discount to list, what is the gross profit margin? What is the markup based on cost? Solution –We will use $100 for convenience. –The cost would be 70% x $100 = $70 –The selling price would be 90% x $100 = $90 –Gross Profit Margin C = SP(1 – r) $70 = $90(1 – r) r = 22.22% –Markup Based on Cost $90 = $70(1 + r) r = 28.57%

49 8-48 8.3Series and Trade Discounts Series discounts are multiple discounts to a price in succession. Sometimes, a manufacturer may offer multiple trade discounts. For example, a company might normally offer a 25% trade discount but during a special promotion or to match a competitors pricing, might offer an additional 15% discount. Despite appearances, its incorrect to conclude that success discounts of 25% and 15% are equivalent to a single discount of 40%. The single discount equivalent to a series of discounts is referred to as the single equivalent discount.

50 8-49 8.3Series and Trade Discounts Example 8.3.7 Problem –The list price for a herbal weight loss supplement is $39.95. The manufacturer normally offers a 25% trade discount, but during a special promotion it offers an additional 15% discount. Find the net price for this item. Solution 75% x $39.95 = $29.96 85% x $29.96 = $25.47 This could also be calculated more simply as (75%)(85%)($29.96) = $25.47

51 8-50 8.3Series and Trade Discounts Example 8.3.8 Problem –Find the single equivalent discount for successive 25% and 15% discounts. Solution –We will work from an assumed price of $100. These discounts will reduce the price to 75% x 85% x $100 = $63.75 This is a total discount of $100 -- $63.75 = $36.25 As a percent of the list price, its $36.25/$100 = 36.25%

52 8-51 8.3Series and Trade Discounts Example 8.3.9 Problem –You work for a company that manufactures photovoltaic (solar) panels. Your companys 70-watt panel lists for $295 and you offer an 18% trade discount. –A competing company lists its 70-watt panel for $305 and offers a 25% trade discount. –Ingraham Solar Systems, one of your main customers, tells you that it is considering switching to your competitors panels because of their lower cost. –What additional discount do you need to offer to match your competitors price?

53 8-52 8.3Series and Trade Discounts Example 8.3.9 Cont. Solution –You are selling your panels for 82% x $295 = $241.90 –Your competitor is selling for 75% x $305 = $228.75 –You would need to drop your current net price by $241.90 -- $228.75 = $13.15 –As a percent of $241.90, it works out to $13.15/$241.90 = 5.44%

54 8-53 8.3Series and Trade Discounts A merchant may require customers to pay for their orders in advance, before the merchandise is shipped. It is not unusual, though, for a seller to sell items on credit, especially to customers with whom the seller has (or hopes to build) a good relationship. Even when credit is extended, the seller still wants to be paid promptly and late payments may incur interest charges. A cash discount is a discount offered for prompt payment. The period of time during which the cash discount is available is called the discount period.

55 8-54 8.3Series and Trade Discounts Dating Method Discount Period Begins: AbbreviationExample Ordinary On the invoice date None. Assumed if not otherwise indicated. 2/10, n/30 End of Month At the end of the month following the invoice date EOM2/10, n/30, EOM Proximo At the end of the month following the invoice date PROX2/10, n/30, PROX Receipt of Goods When the buyer receives the merchandise ROG2/10, n/30, ROG Postdated As of date indicated on the invoice AS OF 2/10, n/30, AS OF 3/7/08

56 8-55 8.3Series and Trade Discounts Example 8.3.10 Problem –Neds Furniture Galaxy ordered a shipment of dining room sets. The invoice was dated March 14, 2007, and the order arrived on March 28, 2007. The manufacturer offers a 2 ½% cash discount for payment within 10 days. –To take advantage of this discount, when must Ned make payment if the dating method is (a) ordinary dating, (b) end of month, (c) receipt of goods, or (d) postdated as of May 1, 2007?

57 8-56 8.3Series and Trade Discounts Example 8.3.10 Cont. Solution –With ordinary dating, the clock starts ticking on the invoice date, March 14, so Ned must make the payment by March 24. –With EOM dating, the clock starts ticking at the end of March, so Ned must pay by April 10. –The furniture arrived on March 28 so Ned must pay by April 7. –The discount period begins on May 1 so Ned must pay by May 11.

58 8-57 Section 8.3 Exercises Problem 1: Trade Discounts Problem 2: Series Discounts Problem 3: Cash Discounts Problem 4: Grab Bag

59 8-58 Problem 1 Book-a-Nook bought 100 copies of a popular novel. The list price for each book is $14.99 and the publisher offered a 20% trade discount. How much did Book-a-Nook pay for the novels? CHECK YOUR ANSWER

60 8-59 Solution 1 Book-a-Nook bought 100 copies of a popular novel. The list price for each book is $14.99 and the publisher offered a 20% trade discount. How much did Book-a-Nook pay for the novels? $14.99 x 80% = $11.99 $11.99 x 100 = $1,199.00 BACK TO GAME BOARD

61 8-60 Problem 2 Your favorite department store is having a 25% off sale. If you pay with your store credit card, you will get an additional 10% off. You found a suit for $99. What is a sale price of this suit if you take an advantage of both discounts? CHECK YOUR ANSWER

62 8-61 Solution 2 Your favorite department store is having a 25% off sale. If you pay with your store credit card, you will get an additional 10% off. You found a suit for $99. What is a sale price of this suit if you take an advantage of both discounts? 75% x 90% x $99 = $66.83 BACK TO GAME BOARD

63 8-62 Problem 3 Alexas Antiques Boutique ordered several pieces from the dealer. The invoice was dated May 18, 2007. The dealer also offered a 2% cash discount for payment within 10 days. If Alexa wants to take an advantage of this offer, when and how much should she pay? CHECK YOUR ANSWER

64 8-63 Solution 3 Alexas Antiques Boutique ordered several pieces from the dealer for a total of $25,467.89. The invoice was dated May 18, 2007, terms 2/10, n/30. If Alexa wants to take an advantage of this offer, when and how much should she pay? If not otherwise indicated, we assume that the dating method is ordinary, so discount period begins on the invoice date. The discount is 2% so Alexa would pay only 98% x $25,467.89 = $24,958.53. The last day to pay is 10 days after the invoice date, so its May 28, 2007. BACK TO GAME BOARD

65 8-64 Problem 4 Its time to replenish the office supplies so Donna, the secretary, placed an order below. How much will Donnas company pay if they take an advantage of the cash discount? CHECK YOUR ANSWER QuantityDescriptionUnit PriceTotal 10 boxesPencils$4.95$40.95 10 boxesPens, Black Ink$7.43$70.43 5 packagesNotepads$10.40$52.00 Subtotal LESS: 15% trade discount Net Price LESS: 2% cash discount (2/10, n30) Subtotal Sales Tax (7%) Total Due

66 8-65 Solution 4 BACK TO GAME BOARD QuantityDescriptionUnit PriceTotal 10 boxesPencils$4.95$40.95 10 boxesPens, Black Ink$7.43$70.43 5 packagesNotepads$10.40$52.00 Subtotal$163.38 LESS: 15% trade discount($24.51) Net Price$138.87 LESS: 2% cash discount (2/10, n30)($2.78) Subtotal$136.09 Sales Tax (7%)$9.53 Total Due$145.62

67 8-66 8.4Depreciation The dollar value of any thing that can be owned will change as time goes by. Some things, like real estate and collectibles, are expected to go up in value over time. We call that increase in somethings dollar value price appreciation. Other things, though, become less valuable with use and the passing of time. Computers and electronics become obsolete, used cars command lower prices, and business equipment becomes less valuable. The decline in somethings dollar value is called depreciation.

68 8-67 8.4Depreciation Example 8.4.1 Problem –According to a wine expert, the market price for a very rare bottle of Chateau la Plonque wine is $3,650. In an interview in a wine trade publication, he states that he expects this particular bottle to appreciate at a 7% annual rate for the next 10 years. –If his prediction turns out to be correct, what will the price be 10 years from now? Solution FV = PV(1 + i) n FV = $3,650(1.07) 10 FV = $7,180.10

69 8-68 8.4Depreciation Example 8.4.2 Problem –Todd just bought a new car for $23,407. According to an online used car pricing service, the value of this car will decline at a 15% annual rate. Assuming this is correct, what will the cars value be in 5 years? Solution FV = PV(1 + i) n FV = $23,407(0.85) 5 FV = $10,386

70 8-69 8.4Depreciation When we calculate depreciation by assuming that each years depreciation is a set percent of a decreasing value, the amount of annual depreciation decreases with each passing year. For this reason, this is often referred to as declining balance depreciation. There is another very commonly used method for calculating depreciation, though. With straight- line depreciation, we assume that the price declines by the same dollar amount each year.

71 8-70 8.4Depreciation Example 8.4.3 Problem –The Cotswold Real Estate Agency purchased a computer for $2,000. The useful life of the computer is 5 years. The computer is assumed to have no salvage value. –Find (a) the straight-line depreciation rate, (b) the depreciated value of the computer, and (c) the depreciated value after 7 years. Solution –The computer will lose its full $2,000 initial value in 5 years, and since it loses the same amount each year, the depreciation rate is $2,000/5 = $400 per year. –If the computers value drops by $400 per year for 3 years, that means it will be worth $2,000 – 3($400) = $800 at the end of the 3 years. –Since the computers useful life is 5 years, from that time on it has a value of $0.

72 8-71 8.4Depreciation FORMULA 8.4.1 Straight-Line Depreciation Rate where D represents the ANNUAL DEPRECIATION AMOUNT IV represents the INITIAL VALUE OF THE ITEM SV represents the SALVAGE (RESIDUAL) VALUE UL represents the USEFUL LIFE OF THE ITEM

73 8-72 8.4Depreciation FORMULA 8.4.2 Straight-Line Depreciation DV = IV – D(n) when n < UL DV = 0 when n UL where DV represents the DEPRECIATED VALUE n represents the NUMBER OF YEARS THAT HAVE PASSED

74 8-73 8.4Depreciation Example 8.4.4 Problem –Rework Example 8.4.3 using D and DV formulas. Solution –First, we find the annual depreciation amount. –Then, we find the depreciated value after 3 years: DV = IV – D(n) = $2,000 -- $400(3) = $800 –Since n = 7 and UL = 5, and 7 > 5, we conclude that the value after 7 years is $0.

75 8-74 Section 8.4 Exercises Problem 1: Percent Depreciation Problem 2: Straight-Line Depreciation

76 8-75 Problem 1 Ardeth just bought a new copier for $3,700. According to the published index, the value of this copier will decline at a 10% annual rate. Assuming this is correct, what will the copiers value be in 3 years? CHECK YOUR ANSWER

77 8-76 Solution 1 Ardeth just bought a new copier for $3,700. According to the published index, the value of this copier will decline at a 10% annual rate. Assuming this is correct, what will the copiers value be in 3 years? FV = PV(1 + i) n FV = $3,700(0.90) 3 FV = $2,697.30 BACK TO GAME BOARD

78 8-77 Problem 2 Jens Bakery bought a delivery van for $28,500. The useful life of the van is 10 years. The expected salvage value is $3,000. Find the straight-line depreciation rate. CHECK YOUR ANSWER

79 8-78 Solution 2 Jens Bakery bought a delivery van for $28,500. The useful life of the van is 10 years. The expected salvage value is $3,000. Find the straight-line depreciation rate. Because the expected salvage value is only $3,000, the depreciation rate is ($28,500 -- $3,000)/10 = $2,550 BACK TO GAME BOARD

80 8-79 Chapter 8 Summary Markup Based on Cost Determining Markup PercentDetermining Markup Percent Markdown Gross Profit Margin Net Profit Margin Markup Based on Selling PriceMarkup Based on Selling Price Trade Discounts Series Discounts Cash Discounts Price Appreciation Percent Depreciation Straight-Line DepreciationStraight-Line Depreciation

81 8-80 Chapter 8 Exercises Section 8.1Section 8.2Section 8.3Section 8.4 $100 $200 EXIT

82 8-81 Section 8.1 -- $100 A beauty salon charges a 45% markup based on cost for the hair color system. What would its price if the cost is $5.99? What is the dollar amount of the markup on this item? CHECK YOUR ANSWER

83 8-82 Section 8.1 -- $100 A beauty salon charges a 45% markup based on cost for the hair color system. What would its price if the cost is $5.99? What is the dollar amount of the markup on this item? P = C(1 + r) P = $5.99(1 + 45%) P = $8.69 Markup = $8.69 -- $5.99 = $2.70 BACK TO GAME BOARD

84 8-83 Section 8.1 -- $200 At its Memorial Day sale, a department store is offering 20% off everything in the store. What would be the price of item originally priced at $159.34? CHECK YOUR ANSWER

85 8-84 Section 8.1 -- $200 At its Memorial Day sale, a department store is offering 20% off everything in the store. What would be the price of item originally priced at $159.34? MP = OP(1 – d) MP = $159.34(0.80) MP = $127.47 BACK TO GAME BOARD

86 8-85 Section 8.2 -- $100 Last quarter, Randys Pool Supplies had sales totaling $492,780, the cost of the goods sold was $204,500, and expenses totaled $97,231. Find the overall net profit margin. CHECK YOUR ANSWER

87 8-86 Section 8.2 -- $100 Last quarter, Randys Pool Supplies had sales totaling $492,780, the cost of the goods sold was $204,500, and expenses totaled $97,231. Find the overall net profit margin. Net Profit = $492,780 – $204,500 -- $97,231 Net Profit = $191,049 Net Profit Margin = $191,049/$492,780 = 38.77% BACK TO GAME BOARD

88 8-87 Section 8.2 -- $200 Arlenes Gifts Galore is selling gift baskets purchased from a wholesaler for $20 each. Determine the selling price of each basket in order to have a 40% gross profit margin. CHECK YOUR ANSWER

89 8-88 Section 8.2 -- $200 Arlenes Gifts Galore is selling gift baskets purchased from a wholesaler for $20 each. Determine the selling price of each basket in order to have a 40% gross profit margin. C = SP(1 – r) $20 = SP(1 – 40%) $20 = SP(0.60) SP = $33.33 BACK TO GAME BOARD

90 8-89 Section 8.3 -- $100 Jasmines Hair Creations salon has placed an order for some beauty products. The total list price for this order is $374.50 but the supplier is offering a 15% trade discount. What is the total cost of this order? CHECK YOUR ANSWER

91 8-90 Section 8.3 -- $100 Jasmines Hair Creations salon has placed an order for some beauty products. The total list price for this order is $374.50 but the supplier is offering a 15% trade discount. What is the total cost of this order? Trade Discount = $374.50 x 15% = $56.18 Total Cost = $374.50 -- $56.18 = $318.32 BACK TO GAME BOARD

92 8-91 Section 8.3 -- $200 Nancys Yarn Boutique is selling rolls of yarn for $8.99 each. Nancy normally offers a 10% discount on any purchases over $100. However, during Mothers Day sale, she is offering a 5% off all purchases. If Doris purchased 12 rolls of yarn, how much did she pay? CHECK YOUR ANSWER

93 8-92 Section 8.3 -- $200 Nancys Yarn Boutique is selling rolls of yarn for $8.99 each. Nancy normally offers a 10% discount on any purchases over $100. However, during Mothers Day sale, she is offering a 5% off all purchases. If Doris purchased 12 rolls of yarn, how much did she pay? 12 x $8.99 = $107.88 0.90 x 0.95 x $107.88 = $92.24 BACK TO GAME BOARD

94 8-93 Section 8.4 -- $100 The current fair market price of your house is $89,200. According to the local Chamber of Commerce, the housing market in your area will appreciate at a 8% annual rate for the next 10 years. If the prediction is accurate, what will the price of your house be in 10 years? CHECK YOUR ANSWER

95 8-94 Section 8.4 -- $100 The current fair market price of your house is $89,200. According to the local Chamber of Commerce, the housing market in your area will appreciate at a 8% annual rate for the next 10 years. If the prediction is accurate, what will the price of your house be in 10 years? FV = PV(1 + i) n FV = $89,200(1 + 8%) 10 = $192,576.11 BACK TO GAME BOARD

96 8-95 Section 8.4 -- $200 You just bought a brand new car for $21,590. According to an online new car pricing service, the value of this car will decline at a 5% annual rate. Assuming this is correct, what will the cars value be in 5 years when you pay off the loan? CHECK YOUR ANSWER

97 8-96 Section 8.4 -- $200 You just bought a brand new car for $21,590. According to an online new car pricing service, the value of this car will decline at a 5% annual rate. Assuming this is correct, what will the cars value be in 5 years when you pay off the loan? FV = PV(1 + i) n FV = $21,590(1 + (-5%)) 5 FV = $16,705.93 BACK TO GAME BOARD


Download ppt "© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-1 Chapter 8 Mathematics of Pricing STARTEXIT."

Similar presentations


Ads by Google