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CHAPTER 6 :
MARK UP & MARK DOWN
6.1 Mark Up
6.2 Conversion of
Mark Up Percent
6.3 Mark Down
6.4 Profit & Loss
6.1 Mark Up
Mark up – Introduction
An important principle in retail business is the
proper pricing of its merchandise.
Wrong pricing may lead to small profit or heavy
loss.
The cost price is the original price of the
merchandise paid by the retailer.
The retailer must add an additional amount
called the markup to its cost to cover its
business and to provide a profit.
6.1 Mark Up
Mark up – Definition
The sum of this cost and markup is the retail
(or selling) price .
In other words, markup (or gross profit or gross
margin) is the difference in the retail price and
cost price;
price
R = C + M
R = retail price
C = cost price
M = markup or gross profit
6.1 Mark Up
Mark up – Percent
Markup is usually expressed as a percent.
It can be expressed as;
Mark up percent based on retail price:
price
M
%M r = × 100%
R
Mark up percent based on cost price:
price
M
%M c = × 100%
C
EXAMPLE 1
1. The cost price of an antique table is RM 5000. What is
the retail price & markup if the seller wants a 20%
markup based on
i. Cost price
ii. Retail price.
Solution

i. Based on Cost Price, we form a table:

R
?

=
=

C
RM5000

+
+

M
?

120%C =

100%C

+

20%C

retail price =

120
× RM 5,000 = RM 6,000
100

markup = RM 6 000 − RM 5 000
= RM1000
EXAMPLE 1
1. The cost price of an antique table is RM 5000. What is
the retail price & markup if the seller wants a 20%
markup based on
i. Cost price
ii. Retail price.
Solution

ii. Based on Retail Price, we form a table:

R
?

=
=

100%R =
retail price =

C
RM5000

+
+

M
?

80%R

+

20%R

100
× RM 5,000 = RM 6,250
80

markup = RM 6 250 − RM 5 000
= RM1250
EXAMPLE 1
2. Mariam’s Shop purchased 90 shirts at a cost of RM20
each. The shop expects that 10% of the shirts will be
sold at a reduced price of RM15 each. If the shop is to
maintain a 75% markup on cost on the entire
purchase, find the regular price of the shirts.
Solution
EXAMPLE 1
3. A retailer purchased 200 kg of cucumber at 50 cents
per kilogram. A 5% spoilage is expected. If he plans to
make a 40% markup based on overall cost, what is the
selling price of the cucumber?
Solution
6.2 Conversion of
Mark Up Percent
Mark up – Conversion
Markup percent based on retail can be
converted to markup percent based on
cost and vice versa as follows.
Markup percent based on
retail price
Since R = C + M

%M c
%M r =
1 + %M c

1 + %M c = 100% + %M c

Markup percent based on
cost price
Since R = C + M
100% = 1 − %M r + %M r

%M r
%M c =
1 − %M r
EXAMPLE 2
1. The markup percent based on cost price of an item is
20%. What is its markup percent based on retail price?
price
2. The markup percent based on retail price of an item is
15%. What is its markup percent based on cost price?
price
Solution

1. From %M r =

%M c
1 + %M c

20%
1 + 20%
= 16.67%

%M r =

This also be worked out by
using the markup equation

OR
R

=

C

+

M

120%C

=

100%C

+

20%C

markup
× 100%
retail
20%
=
× 100%
120%
= 16.67%

%M r =
EXAMPLE 2
1. The markup percent based on cost price of an item is
20%. What is its markup percent based on retail price?
price
2. The markup percent based on retail price of an item is
15%. What is its markup percent based on cost price?
price
Solution

2. From

This also be worked out by
using the markup equation

OR
R

=
=

C

+
+

M
6.3 Mark Down
Mark down – Definition
Markdown is a decrease in the selling
price.
It is the difference in the old retail price
and the new retail price; that is
MD = OP – NP
MD = mark down
OP = old retail price
NP = new retail price
6.3 Mark Down
Mark down – Percent
Prices sometimes are markdown due to
many reasons:
to face stiff competition
to encourage purchases in bulk
to dispose off old, damaged or obsolete
stocks
to close a line of merchandise.
The markdown percent, %MD is based
percent
on old price, OP and is expressed as
follows:
MD
%MD =

OP

× 100%
EXAMPLE 3
The markdown percent on a TV set is 10%. If the new retail
price is RM900, find the old retail price.
Solution
EXAMPLE 4
During a clearance sale, an appliance department marked
down a microwave oven by 12%, making the selling price
RM400. At this selling price, the department made a 30%
markup on the selling price. Determine:
a) the regular price of the oven
b) the cost of the oven
c) the markup percent of the oven at the regular price
Solution
EXAMPLE 5
A retailer wants to sell an item that cost RM200 at a
marked price less 15% discount that will give him a 28%
markup based on cost. Calculate
a) the actual selling price
b) the list price
Solution
6.4 PROFIT & LOSS
Not all businesses make money.
A business incurs operating expenses, OE
such as: rents, lighting, wages,
commissions, bonus and other operating
expenses.
The markup must be able to cover the
operating expenses.
If markup is greater than operating
expenses, net profit is achieved.
expenses
achieved
However if markup is less than operating
expenses, loss is incurred.
expenses
incurred
6.4 PROFIT & LOSS
If the retail price just covers the cost price
and the operating expenses, then it does
expenses
not make any profit nor incur any loss.
loss
This price is called the breakeven price,
price
that is;
Breakeven price = cost price +
operating expenses
The earlier markup equation, now can be
expressed as follows;
Retail price = Cost + Net profit + Operating
expenses OR
R = C + NP + OE
EXAMPLE 6
A retailer bought a radio for RM200. Buying expenses
amounted to RM20. Operating expenses incurred were
20% of the cost price. If the retailer made a 25% net profit
based on cost, find
a. the retail price
b. the gross profit
c. the net profit
d. the breakeven price
Solution
EXAMPLE 7
A dealer bought a hi-fi set for RM2000 less 10% and 5%.
He sold it at a discount of 20%. If the gross profit earned
by the dealer is 20% on the net retail price, find the list
price of the hi-fi set by him.
Solution
PRACTICE 1
1. The markdown percent for a camera is 20%. If the
new retail price is RM250, find the old retail price.
2. The markdown percent for a shirt is 20%. If the old
retail price was RM40, find the new retail price.
3. If the markup percent based on retail price is 29%,
what is its markup percent based on cost price?
4. The markup percent based on cost is 35%. What is
the markup percent based on selling price?
5. Suppose that furniture store sold a lamp for RM70,
making a gross profit of 40% on cost. Assuming that
the store’s operating expenses run to 30% of cost,
what is the percentage of the store’s operating
expenses related to this sale?

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Business Math Chapter 6

  • 1. CHAPTER 6 : MARK UP & MARK DOWN 6.1 Mark Up 6.2 Conversion of Mark Up Percent 6.3 Mark Down 6.4 Profit & Loss
  • 2. 6.1 Mark Up Mark up – Introduction An important principle in retail business is the proper pricing of its merchandise. Wrong pricing may lead to small profit or heavy loss. The cost price is the original price of the merchandise paid by the retailer. The retailer must add an additional amount called the markup to its cost to cover its business and to provide a profit.
  • 3. 6.1 Mark Up Mark up – Definition The sum of this cost and markup is the retail (or selling) price . In other words, markup (or gross profit or gross margin) is the difference in the retail price and cost price; price R = C + M R = retail price C = cost price M = markup or gross profit
  • 4. 6.1 Mark Up Mark up – Percent Markup is usually expressed as a percent. It can be expressed as; Mark up percent based on retail price: price M %M r = × 100% R Mark up percent based on cost price: price M %M c = × 100% C
  • 5. EXAMPLE 1 1. The cost price of an antique table is RM 5000. What is the retail price & markup if the seller wants a 20% markup based on i. Cost price ii. Retail price. Solution i. Based on Cost Price, we form a table: R ? = = C RM5000 + + M ? 120%C = 100%C + 20%C retail price = 120 × RM 5,000 = RM 6,000 100 markup = RM 6 000 − RM 5 000 = RM1000
  • 6. EXAMPLE 1 1. The cost price of an antique table is RM 5000. What is the retail price & markup if the seller wants a 20% markup based on i. Cost price ii. Retail price. Solution ii. Based on Retail Price, we form a table: R ? = = 100%R = retail price = C RM5000 + + M ? 80%R + 20%R 100 × RM 5,000 = RM 6,250 80 markup = RM 6 250 − RM 5 000 = RM1250
  • 7. EXAMPLE 1 2. Mariam’s Shop purchased 90 shirts at a cost of RM20 each. The shop expects that 10% of the shirts will be sold at a reduced price of RM15 each. If the shop is to maintain a 75% markup on cost on the entire purchase, find the regular price of the shirts. Solution
  • 8. EXAMPLE 1 3. A retailer purchased 200 kg of cucumber at 50 cents per kilogram. A 5% spoilage is expected. If he plans to make a 40% markup based on overall cost, what is the selling price of the cucumber? Solution
  • 9. 6.2 Conversion of Mark Up Percent Mark up – Conversion Markup percent based on retail can be converted to markup percent based on cost and vice versa as follows. Markup percent based on retail price Since R = C + M %M c %M r = 1 + %M c 1 + %M c = 100% + %M c Markup percent based on cost price Since R = C + M 100% = 1 − %M r + %M r %M r %M c = 1 − %M r
  • 10. EXAMPLE 2 1. The markup percent based on cost price of an item is 20%. What is its markup percent based on retail price? price 2. The markup percent based on retail price of an item is 15%. What is its markup percent based on cost price? price Solution 1. From %M r = %M c 1 + %M c 20% 1 + 20% = 16.67% %M r = This also be worked out by using the markup equation OR R = C + M 120%C = 100%C + 20%C markup × 100% retail 20% = × 100% 120% = 16.67% %M r =
  • 11. EXAMPLE 2 1. The markup percent based on cost price of an item is 20%. What is its markup percent based on retail price? price 2. The markup percent based on retail price of an item is 15%. What is its markup percent based on cost price? price Solution 2. From This also be worked out by using the markup equation OR R = = C + + M
  • 12. 6.3 Mark Down Mark down – Definition Markdown is a decrease in the selling price. It is the difference in the old retail price and the new retail price; that is MD = OP – NP MD = mark down OP = old retail price NP = new retail price
  • 13. 6.3 Mark Down Mark down – Percent Prices sometimes are markdown due to many reasons: to face stiff competition to encourage purchases in bulk to dispose off old, damaged or obsolete stocks to close a line of merchandise. The markdown percent, %MD is based percent on old price, OP and is expressed as follows: MD %MD = OP × 100%
  • 14. EXAMPLE 3 The markdown percent on a TV set is 10%. If the new retail price is RM900, find the old retail price. Solution
  • 15. EXAMPLE 4 During a clearance sale, an appliance department marked down a microwave oven by 12%, making the selling price RM400. At this selling price, the department made a 30% markup on the selling price. Determine: a) the regular price of the oven b) the cost of the oven c) the markup percent of the oven at the regular price Solution
  • 16. EXAMPLE 5 A retailer wants to sell an item that cost RM200 at a marked price less 15% discount that will give him a 28% markup based on cost. Calculate a) the actual selling price b) the list price Solution
  • 17. 6.4 PROFIT & LOSS Not all businesses make money. A business incurs operating expenses, OE such as: rents, lighting, wages, commissions, bonus and other operating expenses. The markup must be able to cover the operating expenses. If markup is greater than operating expenses, net profit is achieved. expenses achieved However if markup is less than operating expenses, loss is incurred. expenses incurred
  • 18. 6.4 PROFIT & LOSS If the retail price just covers the cost price and the operating expenses, then it does expenses not make any profit nor incur any loss. loss This price is called the breakeven price, price that is; Breakeven price = cost price + operating expenses The earlier markup equation, now can be expressed as follows; Retail price = Cost + Net profit + Operating expenses OR R = C + NP + OE
  • 19. EXAMPLE 6 A retailer bought a radio for RM200. Buying expenses amounted to RM20. Operating expenses incurred were 20% of the cost price. If the retailer made a 25% net profit based on cost, find a. the retail price b. the gross profit c. the net profit d. the breakeven price Solution
  • 20. EXAMPLE 7 A dealer bought a hi-fi set for RM2000 less 10% and 5%. He sold it at a discount of 20%. If the gross profit earned by the dealer is 20% on the net retail price, find the list price of the hi-fi set by him. Solution
  • 21. PRACTICE 1 1. The markdown percent for a camera is 20%. If the new retail price is RM250, find the old retail price. 2. The markdown percent for a shirt is 20%. If the old retail price was RM40, find the new retail price. 3. If the markup percent based on retail price is 29%, what is its markup percent based on cost price? 4. The markup percent based on cost is 35%. What is the markup percent based on selling price? 5. Suppose that furniture store sold a lamp for RM70, making a gross profit of 40% on cost. Assuming that the store’s operating expenses run to 30% of cost, what is the percentage of the store’s operating expenses related to this sale?