Pricing Math

Lesson Objectives Use the basic formula for calculating a retail price Calculate dollar and percentage markup based on cost Calculate discounted price

John has a computer business and bought a line of computers for $200 each. He sells them for $350. He’s happy because he has made a profit of $150 per computer. Is John correct?

Markup versus Profit Profit – Amount left over from revenue (sales) after costs of merchandise and business expenses are paid Markup or margin – AKA net sales – Difference between sales revenue and cost of goods sold – Expenses and taxes have not yet been paid

Markup and Gross Profit Gross Sales (Revenue)$ Cost of goods sold (Cost of computer) Net Sales (Markup or margin) Less expenses Profit $ 25.00

Markup and Gross Profit Gross Sales (Revenue)$ Cost of goods sold Net Sales (Markup or margin) Less expenses Profit $ $(25.00)

Basic Markup Calculations Cost + Markup = Retail Price $14 + $6 = $20 Retail Price - Cost = Markup $20 - $14 = $6 Retail Price – Markup = Cost $20 - $6 = $14

Calculating percentage markup on cost Cost = $49.50 Retail price = $ Calculate markup: RP – C = MU($) $82.50 – $49.50 = $ Change MU($) to MU(%) based on cost: MU($) / C = MU(%) $33.00/$49.50 =.6667 = 66.7%

Determining Retail Price Based on Cost Cost = $8.50 MU(%) based on cost = 40% 1.Determine the MU($): Cost X MU(%) = MU($) $8.50 X.40 = $ Add MU($) to cost to get retail price: Cost + MU($) = RP $ $3.40 = $11.90

RP x MD(%) = MD($) RP – MD($) = Discounted or sale price What is the difference in a discounted price and a sale price? ANSWER: A sale price is usually temporary Discounting Retail Prices

Retail price = $55.00 Discount = 30% What is the discounted price? $55.00 X.30 = $16.50 $ $16.50 = $38.50

Pricing Math