3Key Words to KnowcostThe actual amount paid for a product, as opposed to its selling price, and which can include expenses such as freight charges and taxes.
4Key Words to Know selling price What a product actually sells for in the store, also called retail price.markupThe difference between the cost of a product and the selling price when the selling price is higher.
5Key Words to Know gross profit The amount of money a supplier makes on a product when it sells it for more than cost.net profitAny money left after expenses have been deducted from gross profits, also called net income.
22Section ObjectiveFigure out:net profit in dollars
23Key Words to Know operating expenses The costs of running a business, such as salaries, rent, utilities, and taxes, also called overhead.
24Formulas How do I calculate overhead expenses? Overhead = Selling Price × Overhead PercentHow do I calculate the net profit?Net Profit = Markup – Overhead
25Do Now Sport Shop purchases water tubes for $44.98 each. It sells the tubes for $89.99 each.The owner estimates the overhead expenses to be 40 percent of the selling price of the merchandise.What is the net profit on each tube?
26Do Now Answer: Step 1 Find the markup. Selling Price – Cost $89.99 – $44.98 = $45.01
27Do Now Answer: Step 2 Find the overhead. Selling Price × Overhead Percent$89.99 × 40% = $ or $36.00
28Do Now Answer: Step 3Find the net profit.Markup – Overhead$45.01 – $36.00 = $9.01
29Do Now 2Anamarie’s Shoppe buys shirts at a cost of $ Anamarie’s sell the chemises at a selling price of $ Its management estimates the overhead expenses to be 34 percent of the selling price of the merchandise.What is the net profit on each shirt sold?
34Section Objective Find out: net profit as a percent of the selling price
35Key Words to Know net-profit rate The net profit on an item expressed as a percent of the selling price.
36FormulaNet-Profit Rate = Net Profit ÷ Selling Price
37Do NowGiant Discounts sells a vacuum cleaner for $ The cost of the vacuum cleaner to Giant Discounts is $ Giant estimates the overhead expenses on the vacuum to be 30 percent of the selling price.What is the net-profit rate based on the selling price of the vacuum cleaner?
38Do Now Answer: Step 1 Find the net profit. Markup – Overhead ($49.99 – $23.74) – ($49.99 × 30%)$26.25 – $15.00 = $11.25
39Do Now Answer: Step 2 Find the net-profit rate. Net Profit ÷ Selling Price$11.25 ÷ $49.99 = or 22.5%
40Do Now 2 A robot transformer costs the Toy Store $7.85. It has a selling price of $16.96.The store estimates overhead at 28 percent of the selling price.Find the net-profit rate based on the selling price.
41Do Now 2 Answer: Step 1 Find the net profit. Markup – Overhead ($16.96 – $7.85) – ($16.96 × 28%)$9.11 – $4.75 = $4.36
42Do Now 2 Answer: Step 2 Find the net-profit rate. Net Profit ÷ Selling Price$4.36 ÷ $16.96 = or 25.7%
43SECTION16-5Determining Selling Price—Markup Based on Selling Price
44Section Objective Calculate: selling price of an item based on the cost and markup rate
45FormulaSelling Price = Cost ÷ Complement of Markup Rate
46Do NowVJ’s Sporting Goods Store aims for a markup that is 40 percent of the selling price of its merchandise.The store received a shipment of running shoes at a cost of $38.99 per pair.What is the minimum selling price the store should charge?
47Do Now (cont.) Sales for Month: $42,000 Percent of Total Sales Cost of goods sold 25, %Overhead expenses 8, %Profit , %TOTAL $42, %(Note: Markup plus cost equals selling price. If the markup is 40 percent of the selling price, then the cost must be 60 percent of the selling price. Sixty percent is the complement of 40 percent.)
48Do Now Answer: Step 1 Find the complement of the markup rate. 100% – 40% = 60%
49Do Now Answer: Step 2Find the selling price.Cost ÷ Complement of Markup Rate$38.99 ÷ 60% = $64.98
50Do Now 2Circuit Town purchased some digital cordless phones for $31.99.Its markup policy is 20 percent based on the selling price.What is the selling price of the phones?
51Example 2 Answer: Step 1Find the complement of the markup rate.100% – 20% = 80%
52Do Now 2 Answer: Step 2 Find the selling price. Cost ÷ Complement of the Markup Rate$31.99 ÷ 80% = $39.99
64SECTION16-7Determining Selling Price—Markup Based on Cost
65Section ObjectiveCompute:selling price based on costmarkup rate
66Formulas How do I calculate the markup? Markup = Cost × Markup Rate How do I calculate the selling price?Selling Price = Cost + Markup
67Do Now 1Wholesale Jewelers sells watches to jewelry stores for $18.45 each. Wholesale Jewelers calculates the suggested retail price and attaches it to each watch. The retail price is computed by marking up the cost to the jewelry store by 160 percent of the cost.What is the suggested retail selling price?
68Do Now 1 Answer: Step 1 Find the markup. Cost × Markup Rate $18.45 × 160% = $29.52
69Do Now 1 Answer: Step 2 Find the selling price. Cost + Markup $ $29.52 = $47.97
70Do Now 2Florida Nursery Stock sells hanging baskets to retail outlets at a cost of $2.58.Most of the outlets mark up hanging baskets at 150 percent of cost.What selling price do most outlets put on the hanging baskets?
71Do Now 2 Answer: Step 1Find the markup.Cost × Markup Rate$2.58 × 150% = $3.87
72Do Now 2 Answer: Step 2Find the selling price.Cost + Markup$ $3.87 = $6.45
74Section Objective Calculate: markdown in dollars markdown as a percent of the regular selling price
75Key Words to Know markdown The difference between the regular selling price of an item and its sale price, or the amount of the discount.markdown rateThe discount on an item expressed as a percent of its regular selling price, such as 20 percent.
76Formulas How do I calculate the markdown? Markdown = Regular Selling Price – Sale PriceHow do I calculate the markdown rate?Markdown Rate = Markdown ÷ Regular Selling Price
77Do Now 1Ski’s Sport Shop sells cross-country skis at a regular selling price of $98.49.For one week only, Ski’s has marked down the price to $68.94.What is the markdown rate?
78Do Now 1 Answer: Step 2Find the markdown rate.Markdown ÷ Regular Selling Price$29.55 ÷ $98.49 = or 30%
79Do Now 1 Answer: Step 1Find the markdown.Regular Selling Price – Sale Price$98.49 – $68.94 = $29.55
80Do Now 2Diamond Connection has marked down diamond heart necklaces from $49.99 to $39.99.What is the markdown and the markdown rate?
81Do Now 2 Answer: Step 1 Find the markdown. Regular Selling Price – Sale Price$49.99 – $39.99 = $10.00
82Do Now 2 Answer: Step 2Find the markdown rate.Markdown ÷ Regular Selling Price$10.00 ÷ $49.99 = $ or 20.0%