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McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved Chapter 8 Markups and Markdowns: Perishables and Breakeven Analysis

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8-2 Calculate dollar markup and percent markup on cost Calculate selling price when you know cost and percent markup on cost Calculate cost when dollar markup at percent markup on cost are known Calculate cost when you know the selling price and percent markup on cost Markups and Markdowns; Perishables and Breakeven Analysis #8 Learning Unit Objectives Markup Based on Cost (100%) LU8.1

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8-3 Calculate dollar markup and percent markup on selling price Calculate selling price when dollar markup and percent markup on selling price are known Calculate selling price when cost and percent markup on selling price are known Calculate cost when selling price and percent markup on selling price are known Convert from percent markup on selling price to percent markup on cost and vice versa #8 Learning Unit Objectives Markup Based on Selling Price (100%) LU8.2 Markups and Markdowns; Perishables and Breakeven Analysis

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8-4 Calculate markdowns; compare markdowns and markups Price perishable items to cover spoilage loss #8 Learning Unit Objectives Markdowns and Perishables LU8.3 Markups and Markdowns; Perishables and Breakeven Analysis

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8-5 Calculating Contribution Margin (CM) Calculating a Breakeven Point (BE) #8 Learning Unit Objectives Breakeven Analysis LU8.4 Markups and Markdowns; Perishables and Breakeven Analysis

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8-6 Terminology Selling Price - The price retailers charge customers Cost - The price retailers pay to a manufacturer or supplier Markup, margin, or gross profit - The difference between the cost of bringing the goods into the store and the selling price Operating expenses or overhead - The regular expenses of doing business such as rent, wages, 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

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8-7 Basic Selling Price Formula Selling price (S) = Cost (C) + Markup (M) $23 Jean $18 - Price paid to bring Jeans into store $5 - Dollars to cover operating expenses and make a profit

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8-8 Markups Based on Cost (100%) Cost + Markup = Selling Price 100% 27.78% 127.78% Cost is 100% - the Base Dollar markup is the portion Percent markup on cost is the rate

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8-9 Calculating Dollar Markup and Percent Markup on Cost Target buys Levis Jeans for $18. They plans to sell them for $23. What is Targets markup? What is his percent markup on cost? Dollar Markup = Selling Price - Cost $ 5 = $23 - $18 Percent Markup on Cost = Dollar Markup Cost $5 = 27.78% $18 Check: Selling Price = Cost + Markup 23 = 18 +.2778(18) $23 = $18 + $5 Cost (B) = Dollar Markup Percent markup on cost $5 = $18.2778

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8-10 Calculating Selling Price When You Know Cost and Percent Markup on Cost Rays Appliances bought a refrigerator for $100. To make desired profit, he needs a 65% markup on cost. What is Rays dollar markup? What is his selling price? S = C + M S = $100 +.65($100) S = $100 + $65 S = $165 Dollar Markup

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8-11 Calculating Cost When You Know Selling Price and Percent Markup on Cost Janes imported flower business sells floral arrangements for $50. To make her desired profit, Jane needs a 40% markup on cost. What do the flower arrangements cost Jane? What is the dollar markup? S = C + M $50 = C +.40(C) $50 = 1.40C 1.40 $35.71 = C M = S - C M = $50 - $35.71 M = $14.29

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8-12 Markups Based on Selling Price (100%) Cost + Markup = Selling Price 78.26% + 21.74% = 100% Selling Price is 100% - the Base (B) Dollar ($) markup is the portion (P) Percent (%) markup on selling price is the rate (R)

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8-13 Calculating Dollar Markup and Percent Markup on Selling Price Target buys Levis Jeans for $18. They plans to sell them for $23. What is Targets markup? What is his percent markup on selling price? Dollar Markup = Selling Price - Cost $ 5 = $23 - $18 Percent Markup on Selling Price = Dollar Markup Selling Price $5 = 21.74% $23 Check: Selling Price = Cost + Markup 23 = 18 +.2174($23) $23 = $18 + $5 $5 = $23.2174 Selling Price = Dollar Markup Percent markup on SP

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8-14 Calculating Selling Price When You Know Cost and Percent Markup on Selling Price Rays Appliances bought a refrigerator for $100. To make desired profit, he needs a 65% markup on selling price. What is Rays selling price and dollar markup? M = S - C M = $285.71 - $100 M = $185.71 S = C + M S = $100 +.65(S) -.65s -.65S.35s = $100.35 S = $285.71

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8-15 Calculating Cost When You Know Selling Price and and Percent Markup on Selling Price Janes imported flower business sells floral arrangements for $50. To make her desired profit, Jane needs a 40% markup on selling price. What is the dollar markup? What do the flower arrangements cost Jane? S = C + M $50 = C +.40($50) $50 = C + $20 -20 - $20 $30 = C Dollar Markup

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8-16 Conversion Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost Percent markup on selling price 1- Percent markup on selling price.2174 = 27.78% 1-.2174 Formula for Converting Percent Markup on Cost to Percent Markup on Selling Price Percent markup on cost 1+ Percent markup on cost.2778 = 21.74% 1+.2778

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8-17 Equivalent Markup Percent markup on Percent markup on cost Selling Price (round to nearest tenth percent) 20 25.0 25 33.3 30 42.9 33 49.3 35 53.8 40 66.7 50 100.0

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8-18 Markdowns Sears marked down a $18 tool set to $10.80. What are the dollar markdown and the markdown percent? $10.80 $7.20 $18.00 40% $18-$10.80 Markdown Markdown percent = Dollar markdown Selling price (original)

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8-19 Pricing Perishable Items Alvins vegetable stand grew 300 pounds of tomatoes. He expects 5% of the tomatoes to become spoiled and not salable. The tomatoes cost Alvin $.14 per pound and he wants a 60% markup on cost. What price per pound should Alvin charge for the tomatoes? TC = 300lb. X $.14 = $42.00 TS = TC + TM TS = $42 +.60($42) TS = $67.20 300 lbs. X.05 = 15lbs $67.20 = $.24 285lbs. 300lbs. - 15lbs Selling Price per pound

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8-20 Terminology Variable costs (VC) – Costs that do change in response to changes in the sales Fixed Cost (FC) – Costs that do not change with increases or decreases in sales Contribution Margin (CM) – The difference between selling price (S) and variable costs (VC). Breakeven Point (BE) – The point at which the seller has covered all costs of a unit and has not made any profit or suffered any loss. Selling Price (S) – Price of goods

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8-21 Calculating a Contribution Margin (CM) 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 Contribution margin (CM) = Selling Price (S) – Variable cost (VC)

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8-22 Calculating a Breakeven Point (BE) 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) = Fixed Costs (FC) Contribution margin (CM) Breakeven point (BE) = $60,000 (FC) = 50,000 $2.00 (S) - $.80 (VC)

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8-23 Problem 8-19: Solution: Dollar markup = S – C Percent markup on cost = = 50% $5,000 $10,000 $5,000 = $15,000 - $10,000 Check: C = = = $10,000 Dollar markup. Percent markup on cost $5,000.50

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8-24 Problem 8-21: Solution: $20 = C +.40C $20 1.40C 1.40 = Check: Cost = $14.29 = Selling price _ 1 + Percent markup on cost $20 1.40

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8-25 Problem 8-24: Solution: a. (S) (C) (M) $13.50 - $8.50 = $5.50 dollar markup $5.50 (P) = 68.75% $8.00 (B)

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8-26 Problem 8-25: Solution: $120 = C +.30($120) $120 = C + $36 -36 $84 = C Check: C = Selling price x (1- Percent markup on selling price) $84 = $120 x.70

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8-27 Problem 8-29: Solution: Total cost = 100 x $2.00 = $200 Total selling price = TC + TM TS = $200 +.60($200) TS = $200 + $120 TS = $320 Selling price per cookie = = $3.56 (100 cookies – 10%) $320 90 cookies

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