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A5-2 Chapter 5 Appendix Sales Arithmetic and Pricing

Types of Prices List price – standard price Net price – after discounts Zone price – based on geographical location FOB shipping point – buyer pays FOB destination – seller pays A5-3

Discounts Lower the Price Quantity discounts  Non-cumulative  Cumulative Cash Trade Consumer A5-4

Exhibit B: Types and Examples of Discounts Types of Discounts Quantity Discount Noncumulative (one-time) Cumulative (yearly purchases) Cash discounts Trade discounts Consumer discounts Discount Examples  Buys 11 dozen, get 1 dozen free.  20 percent off on all purchases.  \$5-off invoice for each floor-stand purchase.  5 percent discount with purchase of 8,000 units.  8 percent discount with purchase of 10,000 units.  10 percent discount with purchase of 12,000 units.  2/10 end-of-month.  2/10 net 30.  40 percent off to retailers.  50 percent off to wholesalers.  15 cents off regular price marked on product’s package  10-cents-off coupon. A5-6

Resellers: Markup and Profit Markup Gross profit Net profit Channel of distribution markup Markup arithmetic Return on investment A5-7

What Is the Percent Markup? \$1.00 = cost to retailer \$1.00 = dollar markup \$2.00 = selling price A5-8

What Is the Percent Markup?, cont… It depends on whether you use  Selling Price, or  Cost Dollar markup is divided by either selling price or cost to retailer Selling price = 50% Cost = 100% We use selling price in calculating the percent of markup A5-9

What Is Markup? Markup is the dollar amount added to the product cost to determine its selling price Markup is often expressed as a percentage A5-10

Exhibit C: Example of Markup on Selling Price in Channel of Distribution A5-11

Exhibit D: Example of Using Unit Cost Consumer goods salespeople often break down costs and talk of unit costs and profits. Here is the arithmetic one salesperson used in her presentation: \$1.80 = Regular cost of each unit -.53 = Special promotional allowance ____ \$1.27 = Deal cost \$2.29 = Manufacturer’s suggested selling price \$2.19 = Normal retail selling price 18% = Retailer’s normal profit (\$2.19 - \$1.80 = 39¢ markup) ( 39¢ / \$2.19 = 18% markup) \$1.39 = 3-day special price suggested for retailer to advertise product. 8.6% = 3-day sale profit margin (\$1.39 - \$1.27 = 12¢) ( 12¢ / \$1.39 = 8.6% markup) \$1.89 = 2-week special price suggested for in-store promotion. 33% = After-sale profit margin (\$1.89 -\$1.27 =.62) (.62 / \$1.89 = 33% markup) 18% = Normal profit (\$2.19 - 1.80 = 39 ¢) (39 ¢ / \$2.19 = 18%) The above information (except for the arithmetic in parentheses) was on a sheet of paper with the buyer’s company name at the top. The seller showed how the buyer could purchase a large quantity and make 8.6 percent profit by selling each item for \$1.39 instead of the normal \$2.19. The retailer’s customers save 80¢ (\$2.19 – \$1.39 = 80 ¢). After the three-day sale, the retailer increases the price to \$1.89 for two weeks and makes 33 percent instead of the 18 percent markup. Some numbers are rounded up. A5-12

Exhibit E: Profit Forecaster for Granola Bars Shown to Buyer A5-13

Organizations: Value and ROI Value analysis Product cost compared to true value Unit costs ROI is listened to A5-14