1. Markups and Markdowns: Perishables and Breakeven Analysis
Chapter 08
Markups and Markdowns: Perishables and Breakeven Analysis
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Unit Objectives#8
Markups and Markdowns; Perishables and Breakeven Analysis
Learning Unit Objectives
LU8.1
Markup Based on Cost (100%)
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

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

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

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

6. Terminology
Cost - The price retailers pay to a manufacturer or supplier
Selling Price - The price retailers charge customers
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

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

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

9. Calculating Dollar Markup and Percent Markup on Cost
Gap buys fleece jackets for $18. They plans to sell them for $23. What is Gap’s markup? What is the percent markup on cost?
Dollar Markup = Selling Price - Cost
$ = $ $18
Percent Markup on Cost = Dollar Markup
Cost
$5 = %
$18
Check: Selling Price = Cost + Markup
23 = (18)
$23 = $18 + $5
Cost (B) = Dollar Markup
Percent markup on cost
$5 = $18
.2778

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

11. Calculating Cost When You Know Selling Price and Percent Markup on Cost
Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make her desired profit, Jill needs a 40% markup on cost. What do the tennis rackets cost Jill? What is the dollar markup?
S = C M
$50 = C + .40(C)
$50 = 1.40C
$35.71 = C
M = S C
M = $50 - $35.71
M = $14.29

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

13. Calculating Dollar Markup and Percent Markup on Selling Price
The cost to Gap for a hooded fleece jacket is for $18; the store then plans to sell them for $23. What is Gap’s dollar markup? What is its percent markup on selling price?
Dollar Markup = Selling Price - Cost
$ = $ $18
Percent Markup on Selling Price = Dollar Markup
Selling Price
$5 = %
$23
Check: Selling Price = Cost + Markup
23 = ($23)
$23 = $18 + $5
Selling Price = Dollar Markup
Percent markup on SP
$5 = $23
.2174

14. Calculating Selling Price When You Know Cost and Percent Markup on Selling Price
Mel’s Furniture bought a lamp for $100. To make desired profit, he needs a 65% markup on selling price. What are Mel’s selling price and dollar markup?
S = C M
S = $ (S)
-.65s S
.35s = $100
S = $285.71
M = S C
M = $ $100
M = $185.71

15. Calculating Cost When You Know Selling Price and Percent Markup on Selling Price
Jill Sport, owner of Sports, Inc., sells tennis rackets for $50. To make her desired profit, Jill needs a 40% markup on selling price. What is the dollar markup? What do the tennis rackets cost Jill?
S = C M
$50 = C + .40($50)
$50 = C + $20
$20
$30 = C
Dollar Markup

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

17. Equivalent Markup Percent markup on Percent markup on cost
Selling Price (round to nearest tenth percent)

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

19. Pricing Perishable Items
TC = 300lb. X $.14 = $42.00
TS = TC TM
TS = $ ($42)
TS = $67.20
Alvin’s 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?
300 lbs. X .05 = 15lbs
$ = $.24
285lbs.
Selling Price per pound
300lbs. - 15lbs

20. Break Even Analysis - Terminology
Fixed Cost (FC) – Costs that do not change with increases or decreases in sales
Variable costs (VC) – Costs that do change in response to changes in the 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

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

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

23. Problem 8-19: Solution: Check:
Dollar markup = S – C Percent markup on cost = = 25%
$3,000
$12,000
$3,000 = $15,000 - $12,000
Check:
C = = = $12,000
Dollar markup
Percent markup on cost
$3,000
.25

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

25. Problem 8-24: Solution: Markup = $1.50 - $.42 = $1.08
$1.08/.42 = = %
Check: $1.50 = $ (.42)
$1.50 = $
$1.50 = $1.50

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

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