{"id":104,"date":"2020-04-17T20:41:26","date_gmt":"2020-04-18T00:41:26","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/businessmathematics\/?post_type=chapter&p=104"},"modified":"2024-10-29T14:06:58","modified_gmt":"2024-10-29T18:06:58","slug":"retail-calculations","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/businessmathematics\/chapter\/retail-calculations\/","title":{"raw":"1.4 Retail Calculations","rendered":"1.4 Retail Calculations"},"content":{"raw":"Many retail calculations parallel the foregoing ratio calculations for profits and expenses.\r\n\r\nWhen goods are bought for resale, a decision has to be made about the selling price of the individual articles. The goods are said to be marked up, <\/em>the amount added to the cost of the goods being the [pb_glossary id=\"105\"]markup[\/pb_glossary].<\/em>\r\n\r\nThus\r\n

Selling Price = Cost + Markup<\/p>\r\n\u00a0or\r\n

[latex]S = C+ M[\/latex]<\/p>\r\nif S is used for selling price, C for cost and M for markup.\r\n

\r\n

Key Takeaway<\/p>\r\n\r\n<\/header>\r\n

In setting markup, <\/em>it <\/em>is common to apply the <\/em>same fraction of the cost for marking up all goods in the same category.<\/em><\/div>\r\n<\/div>\r\n\u00a0<\/em>This is similar to the calculation of gross profit for a company:\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nCOMPANY<\/strong><\/td>\r\n<\/td>\r\nARTICLE<\/strong><\/td>\r\n<\/tr>\r\n
<\/td>\r\nSALES<\/td>\r\n<\/td>\r\nSELLING PRICE<\/td>\r\n<\/tr>\r\n
-<\/td>\r\nCOGS<\/span><\/td>\r\n-<\/td>\r\nCOST<\/span><\/td>\r\n<\/tr>\r\n
<\/td>\r\nGROSS PROFIT<\/td>\r\n<\/td>\r\nGROSS PROFIT (MARKUP)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nTo simplify the process of finding markup for each product, it is common to apply the same fraction of the cost as that used for marking up all goods in the same category - for example, sports shoes.\r\n

[latex] Markup\\; Ratio= \\frac{Amount \\;of \\;Markup}{Cost\\; of \\;Goods}[\/latex]<\/p>\r\nThis ratio is usually written as a percent and called [pb_glossary id=\"107\"]percent markup[\/pb_glossary].<\/em>\r\n

[latex]\\% Markup = \\frac{Markup}{Cost}\\times 100\\% [\/latex]<\/p>\r\nFor a markup ratio of 25% and goods that cost $20.00 per unit.\r\n

\r\n

Key Takeaway<\/p>\r\n\r\n<\/header>\r\n

Gross profit: Markup ratio times cost of goods.<\/em><\/div>\r\n<\/div>\r\nSo\r\n

[latex]\\text{Amount of Markup}= \\text{(Markup ratio)} \u00d7 \\text{(Cost of Goods)}= 0.25 \u00d7 \\$20.00 = \\$5.00[\/latex]<\/p>\r\nAnd the selling price would be\r\n

[latex]S=C+M = \\$20.00 +\\$5.00 = \\$25.00[\/latex]<\/p>\r\nThe $5.00 is also called the [pb_glossary id=\"109\"]gross profit[\/pb_glossary] <\/em>on the sale.\r\n\r\nNote that, in general<\/strong>, markup ratios are based on cost prices and that margin ratios are based on sales or selling price. For the above example, if you wanted a margin ratio for the product, you would compare the $5.00 to the selling price of $25.00 and get\r\n

[latex]\\text{Percent Gross Margin}= \\frac{\\$5}{\\$25} = 0.20 = 20\\%[\/latex]<\/p>\r\nSince the percent markup is based on cost, which is known at the time goods are purchased, the normal way to calculate the increase is to use the percent markup method.\r\n

\r\n

Careful!<\/p>\r\n\r\n<\/header>\r\n

Even though this book stays with the definitions of margin and markup as above, you should be aware that some texts and industries may use different terms (for example, \"markon\" instead of \"markup\", or \u201cmarkup on sales\u201d for margin) and different meanings for the terms. But the ones used here are frequently used, and you will find them on most business calculators.<\/div>\r\n<\/div>\r\n
\r\n
\r\n

Knowledge Check 1.4\r\n<\/strong><\/p>\r\n\r\n<\/header>\r\n

\r\n
    \r\n \t
  1. Complete the following table.<\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n\r\n\r\n\r\n
     \r\n\r\na.<\/td>\r\nCOST\r\n\r\n$10.00<\/td>\r\n%MARKUP\r\n\r\n35%<\/td>\r\nMARKUP\r\n\r\n?<\/td>\r\nPRICE\r\n\r\n?<\/td>\r\n<\/tr>\r\n<\/thead>\r\n
    b.<\/td>\r\n$20.00<\/td>\r\n?<\/td>\r\n$9.00<\/td>\r\n?<\/td>\r\n<\/tr>\r\n
    c.<\/td>\r\n$16.00<\/td>\r\n?<\/td>\r\n?<\/td>\r\n$20.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAnswers at the end of chapter.<\/em><\/a>\r\n\r\n<\/div>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

    Your Own Notes<\/h2>\r\n