SHS

Business Mathematics
Quarter 1, Week 6 – Module 9
Describing How Gross Margin is
Used in Sales -ABM_BM11BS-Ih-4

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Business Mathematics- SHS
Quarter 1, Week 6- Module 9: Describing How Gross Margin is Used in Sales

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Development Team of the Module

Writer: EMMYLOYD C. BIERSO, ABM Teacher, TNHS

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 Business Mathematics- SHS
Quarter 1, Week 6- Module 9
Describing How Gross Margin is Used in Sales

I. Introduction

At this point, you have now an idea about mark-up and margin, their
differences and how they are computed.
The focus of this module is for you to describe how gross margin is
used in sales. You will encounter exercises in computing gross margin rate,
total amount of gross margin, cost rate as it relates to sales and converting
mark-up rate based on cost to mark-up rate based on selling price or vice
versa. The module is composed of only one lesson, divided into three
learning activities.

Learning Activity No. 1- Compute for the gross margin as it relates to

sales
Learning Activity No.2- Converting mark-up rate based on cost to
mark-up rate based on selling price
Learning Activity No. 3 -Converting mark-up rate based on selling
price to mark- up rate based on cost

II. What Will You Learn From This Module?

After this module, you should be able to:

• Describe how gross margin is used in sales.

III. Vocabulary List:

This module will help you understand the following:

• Margin / Gross Margin - sales minus the cost of goods sold

• Mark-up - is the amount by which the cost of a product is
increased in order to derive the selling price.

IV. Pre –test:

Answer the following questions. Choose the letter of the correct answer.
Show your computation.

1. If the cost of an item is P 8,000.00 and the gross margin is P 5,000.00,

then how much is the sales?
A. P 3,000.00 B. (P 3,000.00) C. P 13,000.00 D. (P 13,000.00)

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 2. If the gross margin is P 12,000.00, sales is P 32,000.00 and the cost is
P 20,000.00. What is the gross margin rate based on sales?
A. 37.50% B. 60% C. 62.50% D. 40%

3. The gross margin is 25% of sales. The cost amounts to P9,000.00. How
much is the sales?
A. P 36,000.00 B. P 9,000.00 C. P 27,000.00 D. P 12,000.00

4. Total cost amounted to P 26,000.00 which is 65% of sales. Gross margin

rate based on sales is 35%. How much is the total sales?
A. P 14,000.00 B. P 40,000.00 C. P 16,900.00 D. P 35,100.00

5. If the gross margin is P500.00 and the sales is P 2,000.00.What is the

percentage of cost based on sales?
A. 25% B. 133.33% C. 75% D. 33.33%

How do you find the test? Do you find it easy? Well the previous
modules talked about the difference between margin and mark-up. You
will find out more of the gross margin as it relates to sales in this module.

V. Learning Activities:

Learning Activity No.1

GROSS MARGIN BASED ON SALES

Mary is a sidewalk vendor. She sells lemonade at P 5.00 per cup.

It costs her P 3.50. If Mary sold 300 cups a day, how much is the total
sales of Mary?

How much is the gross profit?

How much is the percentage of gross margin based on sales?

In the previous module, you’ve already learned that Gross Margin is

the difference between sales and cost of goods sold.

GROSS MARGIN = Sales - Cost of Goods Sold

To compute for the percentage of gross margin, you simply divide the
gross margin by sales, making it as the base 100%

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 Gross Margin Rate = Gross Margin
Sales

Given in the problem:

Sales 300 x P 5.00 = P 1,500.00

Cost 300 x P 3.50 = P 1,050.00
Gross Margin = P 450.00

• The answer in letter A as to the total sales is P 1,500.00

The total sales amounted to P 1,500.00

Or: Gross margin can also be computed as:

Sales = P 5.00
Cost = P 3.50
Gross Margin = P 1.50 x 300 cups = P 450.00

• The gross margin amounted to P 450.00.

To get the gross margin rate based on sales, you are to use sales as the
base 100%, thus

Gross Margin Rate = Gross Margin

Sales
= P 450.00
P 1,500.00
Gross Margin Rate = 30%

• For letter C, the gross margin rate is 30%.

Learning Activity No.2

Converting Mark-up Based on Cost to Margin Based on

Selling Price

Ryan is into a merchandising business. He sells egg noodles that

cost him P 5.00 per pack. He wanted to have 40% mark-up based on the
cost.

What is the mark-up rate based on the selling price?

What is the cost rate based on the selling price?

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 Again, you need to understand that mark-up is the amount added to
the cost to get the selling price. Margin is the difference between sales and
cost of goods sold. They are both profit, the former relates to cost, while
the latter relates to sales.

To answer the above problem, you need to get the given data and
arrange them in good form.

Rate based on Cost Rate based on selling

price
Selling Price ? 100%
Less: Cost 100% ?
Mark-up 40% ?

What is the mark-up rate based on selling price?

You are about to get the mark-up based on the selling price, when the
given information is mark-up based on cost.

In the previous module, you know that when the base is the cost, let
it be 100%. When the base is selling price, let it be 100%.

Rate based on cost Rate based on selling price

Selling Price 140% 100%
Less: Cost 100% ?
Mark-up 40% ?

To get the mark-up based on selling price, you divide mark-up based
on cost by the selling price rate based on cost. Since the selling price rate is
unknown, you need to find it using the formula:

Selling price rate = Cost rate + Mark-up rate

= 100% + 40%
= 140%

Therefore:

Mark-up based on selling price = mark-up based on cost

selling price rate based on cost
= 40%
140%
= 28.57%

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 Rate based on Rate based on selling price
Cost
Selling Price 140% 100%
Less: Cost 100% ?
Mark-up 40% 28.57%

✓ Therefore the cost rate will be:

Cost rate based on selling price = Selling price rate - Mark-up
based on selling price
= 100% - 28.57%
= 71.43%

Rate based on Cost Rate based on selling

price
Selling Price 140% 100%
Less: Cost 100% 71.43%
Mark-up 40% 28.57%

What is the mark-up rate based on the selling price? 28.57%

What is the cost rate based on the selling price? 71.43%

Learning Activity No.3

Converting Mark-up Based on Selling Price to Mark-up Based on Costs

Julie is also into business. She sells ice candy for P 5.00 per piece.
She wanted to have 40% mark-up based on selling price.

What is the mark-up rate based on cost?

What is the selling price based on cost?

Unlike in the previous discussion, this time the given rate is mark-up
based on selling price. You are to find the mark-up based on the cost.

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 To answer the above problem, you need to get the given data
and arrange them in good form.

Rate based on Selling Rate based on Cost

price
Selling Price 100% ?
Less: Cost ? 100%
Mark-up 40% ?

What is the mark-up rate based on cost?

You are required to find the mark-up rate based on cost when the
given is based on selling price.

• To get the mark-up based on cost, you divide the mark-up based on
selling price by the cost rate. Since cost rate is unknown you need to find
it using the formula:

Cost rate = Selling price rate - Mark-up rate

= 100% - 40%
= 60%

Rate based on Selling Rate based on Costs

price
Selling Price 100% ?
Less: Cost 60% 100%
Mark-up 40% ?

Therefore:
Mark-up based on Cost = mark-up based selling price
cost price rate based on selling price
= 40%
60%
= 66.67%

Rate based on Selling Rate based on Costs

price
Selling Price 100% 33.33%
Less: Cost 60% 100%
Mark-up 40% 66.67%

✓ Therefore, the selling price rate based on costs will be:

selling price based on cost = Cost rate - Mark-up based on costs
= 100% - 66.67%
= 33.33%

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 What is the mark-up rate based on cost? 66.67%

What is the selling price based on cost? 33.33%

VI. Practice Exercises:

Practice Task 1

Answer the following. Show your computation in good form.

1. The cost rate based on the selling price is 60%. If the cost amounted
to P 15,000.00, how much is the mark-up? How much is the selling
price?

2. The mark-up is P 7,000.00 based on the selling price. What is the

mark-up rate if the selling price is P 35,000.00?

3. The selling price of an item is P 45,000.00. The cost rate is 78%. How
much is the mark-up based on cost?

Practice Task 2

Convert the following mark-up rates from mark-up based on cost to

mark-up based on selling price. Show your computation in good form.

No. MU cost MU selling price

1. 15%
2. 45%
3. 40%
4. 35%
5. 12%

Practice Task 3

Convert the following mark-up rates from mark-up based on selling price
to mark-up based on cost. Show your computation in good form.

No. MU selling price MU costs

1. 15%
2. 45%
3. 40%
4. 35%
5. 12%

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 Let’s Remember

This module highlights the following points:

✓ Margin is sales minus the cost of goods sold. This is the profit as it
relates to selling price.
✓ Mark-up is the amount by which the cost of a product is increased
in order to derive the selling price. It addresses the profit as it
relates to cost price.
✓ Margin rate based on selling price is derived by dividing margin by
the selling price.
✓ Margin rate can be converted from mark-up based on selling price
to mark-up based on costs or vice versa.
✓ To convert mark-up based on selling price to mark-up based on
cost, divide the mark-up rate based on selling price by the cost rate.
✓ To convert mark-up based on cost to mark-up based on selling
price, divide the mark-up rate based on cost by the selling price
based on cost

VII. Post- Test:

Convert the following from mark-up from MU based on selling price

to MU based on cost and vice versa. Show your answer in two decimal
places.

No. MU selling price MU costs

1. 17%
2. 22%
3. 35%
4. 8%
5. 10%
6. 25%
7. 13%
8. 30%
9. 20%
10. 12%

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VIII. Assignment:

Answer the following problems:

1. ECB Co. bought merchandise with a list price of P 15,000.00 less 5%

trade discount. How much is the purchase price of the item?

2. Martha sold merchandise with a list price of P 20,000.00. She offers

discount terms, 15% and 5%. How much is the selling price?

ANSWER KEY

Pre test
1. C. P 13,000.00
2. A. 37.50%
3. D. P 12,000.00
4. B. P 40,000.00
5. C. 75%

Practice Task 1

1. The cost rate based on selling price is 60%. If the costs amounted to
P 15,000.00, How much is the selling price? How much is the mark-
up?
Mark-up rate = Selling Price rate - cost price rate
= 100% - 60%
= 40%

Selling price = Cost / Cost rate

= P 15,000.00 / 60%
= P 25,000

Mark-up = Mark-up rate x Selling Price

= 40% x P 25,000.00
= P 10,000.00

2. The mark-up is P 7,000.00 based on the selling price. What is the

mark-up rate if the selling price is P 35,000.00?

Mark-up rate = Mark-up

Selling Price
= 7,000.00
= 35,000.00
= 20%

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 3. The selling price of an item is P 45,000.00. The cost rate is 78%. How
much is the mark-up based on cost?
Mark-up based on selling price
Selling Price 100% P 45,000.00
Cost 78% 35,100.00
Mark-up 22% P 9,900.00

Cost = Selling price x Cost Rate

= P 45,000.00 x 78%
= P 35,100.00

Mark-up based on cost = Mark-up rate based on selling price

Cost price rate based on selling price
= 22%
78%
= 28.21%

Mark-up based on cost = Selling price x mark-up based on cost

= P 45,000.00 x 28.21%
= P 12,695.00

Practice Task 2

No. MU cost MU selling price

1. 15% 13.04%
2. 45% 31.03%
3. 40% 28.57%
4. 35% 25.93%
5. 12% 10.71%

1. Mark-up based on selling price = mark-up based on cost

selling price rate based on cost
= 15%
115%
= 13.04%

2. Mark-up based on selling price = mark-up based on cost

selling price rate based on cost
= 45%
145%
= 31.03%

3.Mark-up based on selling price = mark-up based on cost

selling price rate based on cost
= 40%
140%
= 28.57%
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 4. Mark-up based on selling price = mark-up based on cost
selling price rate based on cost
= 35%
135%
= 25.93%

5. Mark-up based on selling price = mark-up based on cost

selling price rate based on cost
= 12%
112%
= 10.71%

Practice Task 3

No. MU selling price MU costs

1. 15% 17.65%
2. 45% 81.82%
3. 40% 66.67%
4. 35% 53.85%
5. 12% 13.64%

1. Mark-up based on Cost = mark-up based selling price

cost price rate based on selling price
= 15%
85%
= 17.65%

2. Markup based on Cost = markup based selling price

cost price rate based on selling price
= 45%
55%
= 81.82%

3. Markup based on Cost = markup based selling price

cost price rate based on selling price
= 40%
60%
= 66.67%

4. Markup based on Cost = markup based selling price

cost price rate based on selling price
= 35%
65%
= 53.85%

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 5. Markup based on Cost = markup based selling price
cost price rate based on selling price
= 12%
88%
= 13.64%

Post- Test

No. MU selling price MU costs

1. 17% 20.48%
2. 22% 28.21%
3. 35% 53.85%
4. 8% 8.70%
5. 10% 11.11%
6. 20% 25%
7. 11.50% 13%
8. 23.08% 30%
9. 16.67% 20%
10. 10.71% 12%

REFERENCE

➢ Lopez-Mariano, N. D. Business Mathematics 1st edition, pp. 115-121

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