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Markup and Markdown: Study Sheet of Markup and Markdown

College-Cram.com:: Business Math:: Markup and Markdown:: Study Sheet of Markup and Markdown
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Description: Explore the basics of markup and markdown with this Smartacus Study Sheet. Use it to study definitions and formulas (including cost markup, price markup, calculating markdown, and pricing perishables). It also prints for easy reference.
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Contents

  1. Business Math Terms
  2. Markup from Cost
  3. Markup from Price
  4. Pricing Perishables
  5. Markdowns

Business Math Terms

  • Markup is the amount of money above their cost of a product or service that a business will charge for that product or service.
  • The Price of a product or service is what a business is charging after it applies a markup.
  • Markdown is the reduction in price of a product or service based on a percentage of the original price.
  • The Original Price of a product or service is what a business was charging before it decided to apply a markdown.
  • The Sale Price of a product or service is what a business is charging after it applies a markdown.

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Markup from Cost

  • Also known as Cost-Plus-Markup
  • The Markup Rate is expressed as a percentage
  • Given two of Price, Cost, and MarkupRate:

    Price = Cost x (1 + MarkupRate)

    Cost = (Price)/(1 + MarkupRate)

    MarkupRate = (Price/Cost) - 1

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Markup from Price

  • The markup rate is how much (i.e., what percentage) of the price is markup
  • Markup from Price gives a business a set percentage of profit across different products
  • The Markup Rate is expressed as a percentage
  • Since the Markup Rate is the percentage of the price that is markup, it can never exceed 100%
  • Given two of Price, Cost, and MarkupRate:

    Price = Cost/(1 - MarkupRate)

    Cost = Price x (1 - MarkupRate)

    MarkupRate = 1 - (Cost/Price)

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Pricing Perishables

  • Assumes some portion of the product will spoil and become unsellable
  • A second round of markup that adds the cost of the unsellable product evenly to the balance of the sellable product
  • For example, if a 40-pound box of bananas yields 5 pounds of spoilage then the price on 35 pounds must be marked up to cover the cost of the spoiled 5 pounds
  • The Spoilage Rate is expressed as a percentage
  • Given two of NewPrice, OldPrice, and SpoilageRate:

    NewPrice = OldPrice/(1 - SpoilageRate)

    OldPrice = NewPrice x (1 - SpoilageRate)

    SpoilageRate = 1 - (OldPrice/NewPrice)

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Markdowns

  • Businesses generally use markdowns to generate sales and/or clear inventory
  • The Markdown Rate is expressed as a percentage
  • Given two of SalePrice, OriginalPrice, and MarkdownRate:

    SalePrice = OriginalPrice x (1 - MarkdownRate)

    OriginalPrice = SalePrice/(1 - MarkdownRate)

    MarkdownRate = 1 - (SalePrice/OriginalPrice)

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