17 Sample Markup Problems
Ted Mitchell
#1 Cost of Product as Percent of Price
(revenue per unit)
• You have purchased an apple for V = $2 and
have a selling price P= $5 per apple.
• What is the cost of the apple as a percent of
the selling price?
• Answer;
• Cost as Percent of price = V/P = 2/5 = 40%
#2 Selling price (revenue per unit) as
Percent of Cost
• You have purchased an apple for V = $2 and
have a selling price P= $5 per apple.
• What is the selling price of the apple to the
cost of the apple?
• Answer
• Cost as Percent of price = P/V = 5/2 = 250%
3 Markup Problem
• A boy buys an apple for V = $2 and sells it for
P = $5. What is his dollar markup or unit
contribution (M) to Fixed costs and Profits?
• P-V=M
• $5 - $2 = M
• $3 = M = Unit per Unit Sold
4 Markup Problem
• A boy buys an apple for V = $2 and sells it for
P = $5. What is his Markup on Price (Mp)?
• (P - V) / P = Mp
• ($5 - $2) / $5 = Mp
• $3/$5 = 0.6 = 60% =Mp
5 Discount Off List
• A store pays an apple distributor V = $2 per
dollars per apple and sells it the suggested list
price P = $5. What is the store’s Discount Off
List or Markup (Mp)?
• (P - V) / P = Mp
• ($5 - $2) / $5 = Mp
• $3/$5 = 0.6 = 60% = Discount off list price
6 Commission Rate
A store gives their salesmen a 60% commission
on the sale of an apple. The selling price is $5
per apple and the cost of each apple to the store
is $2. How many dollars does the salesperson
earn every time he sells an apple?
• (P - V) / P = Mp
• ($5 - $2) / $5 = 60% commission
• Salesmen’s profit = P x Mp = $5 x 60% = $3
7 Discount Off List to Cost
• An apple distributor gives a store a 60%
discount off the suggested list price of P = $5
per apple (i.e., Mp = 60%). What is the store’s
cost per apple (V)?
•
•
•
•
(P - V) / P = Mp
(5 - V) / 5 = 0.6
5 - V = 0.6(5) = 2
2=V
or the cost per apple = $2
8 Given Markup on Price and Cost
• A boy buys an apple for V = $2 and sells it
with a markup on price of 60% (i.e., Mp =
60%). What is the selling price of the apple?
•
•
•
•
•
(P - V) / P = Mp
(P - 2) / P= 0.6
P - 2 = 0.6P
P -0.6P = 2
P = 2/.4 = 5 or the price per apple = $5
Many students simply memorize
• Cost based pricing equation to set a selling
price using markup and variable cost is
• Price = (variable cost per unit)/(1-Mp)
• P = V/(1 - Mp)
• P = $2/(1-60%)
• P = $2/(1-0.6)
• P = $2/0.4 = $5
9 Markup on Cost
• A boy buys an apple for V = $2 and sells it for
P = $5. What is the Markup on Cost (Mv)?
• (P - V) / V = Mv
• (5 - 2) / 2= Mv
• 3/2 = 1.50 = 150% = Mv
• Markup on cost = Mv = 150%
10 Convert Markup on Cost
to Markup on Price
• You are told that a product has a markup on
cost of 25% What is the product’s markup on
price?
• (1/Mp) - (1/Mv) = 1
• 1/Mp – 1/0.25 = 1
• 1/Mp = 1 + 1/0.25
• 1/Mp = 1 + 4 = 5
• Mp = 1/5 = 0.20 or 20%
11 Convert Markup on Cost
to Markup on Price
• You are told that a product has a markup on cost
of 25% What is the product’s markup on price?
• Make 25% into a fraction
• Mp = 25% = 25/100
• “add the top part to the bottom part”
25/(25+100)
• And solve for Mp = 25/125
• Mp = 25/125 = 0.20 or 20%
12 Chain Markdowns & Markups
• You marked down your selling price of $10 in the
store by 10% two weeks ago, followed by a 20%
markdown last week. This week you marked the
price up by 15%. What is your current price?
• Current price =
$10 x (1 - markdown #1) x (1 - markdown #2) x (1 + markup)
• Current price =
$10 x (1-10%) x (1-20%) x (1+15%)
• Current price = $10 x 0.9 x 0.8 x 1.15 = $8.28
13 Chain Markdowns & Markups
• You marked down your original selling price of $10 in the
store by 10% two weeks ago, followed by a 20% markdown
last week. What is the size of the total percentage
markdown or discount over the two events?
• Current price =
$10 x (1-markdown #1) x (1-markdown #2)
• Current price = $10 x (1-10%) x (1-20%)
• Current price = $10 x 0.9 x 0.8 = $7.20
• Total Markdown % =
(Current price – Original Price)/(Original price)
• Total Markdown = ($10 -7.20)/$10 = -$2.80/$10
• Total Markdown or Discount = -2.80/10 = -0.28 or -28%
14 Chain Markdowns & Markups
• You marked down your original selling price of
$10 in the store by 10% two weeks ago, followed
by a 20% markdown last week. What is the size of
the total percentage markdown or discount?
• To solve directly
• Total discount =
Discount 1 + Discount 2 + (Discount 1 x Discount 2)
• Total discount = D1 + D2 + (D1 x D2)
• Total discount = (-0.10) + (-0.20) + (-0.10 x -0.20)
• Total discount = -0.30 + 0.02 = -0.28 or -28%
15 Markups in a Channel of
Distribution
• A retailer sells wagons at a list price $800 each
and receives a 40% markup on price.
• His distributor gets a 20% markup on the price he
sells the wagon for to the retailer
• The manufacturer get a 30% markup on the price
he sells the wagon for to the distributor
• What is the dollar cost that the manufacturer
pays to make each wagon?
• Manufacturer’s cost to make each wagon=
$800 x (1-0.4) x (1-0.2) x (1-0.3) = $268.80
16 More Markups in a channel of
distribution
• The manufacturer builds wagons for $228.80
each and sells them to a distributor with a
markup on price of 60%.
• The distributor sells the wagons to a retailer.
• The retailer sells the wagons to the final
consumer for $800 each and receives a 30%
discount off the $800 suggested retail price.
• What dollar profit does the distributor make
on each sale?
17 Markups in a Channel of
Distribution
• A retailer sells wagons at a list price $800 each and receives a 40%
markup on price.
Pays the distributor 0.6 of $800 = $480
• His distributor gets a 20% markup on the price he sells the wagon
for to the retailer
The distributor keeps 20% of the price he’s paid
0.2 x $480 = $96
and pays the manufacturer $480 – $96 = $384
• The manufacturer get a 30% markup on the price he sells the
wagon for to the distributor
• What is the dollar profit that the manufacturer makes on the sale of
each wagon?
• Manufacturer’s profit per sale is 30% of the $384 price he is paid
0.3 x $384 = $115.20
His cost per wagon = $384 -$115.20 = $268.80
• Markup problems are simple but you have
think about them carefully
• If you rush, you can get them wrong.
• Any Questions on Markup?