Lesson 4

Calculate Cost of Production

What I Need To Know

At the end of this module, you should be able to:

1. Discuss principles of costing
2. Compute cost of production

How to Learn from this Module

To achieve the objectives cited above, you are to do the following:

• Read and understand carefully all the information lessons.

• Follow the directions and/or instructions in the activities and exercises.
• Answer all the given tests and exercises.

What I know

PRE-TEST: MULTIPLE CHOICE

Direction: Read the sentence carefully and choose the correct answer. Write your answer on a
separate sheet of paper.
1. This. refers to the margin of difference between the cost price and the selling price of an
item
A. Mark-up B. price C. selling price D. cost
2. The value that a store owner sets for his goods.
A. Mark-up B. price C. selling price D. cost
3. An activity concerned with obtaining food at the right price at the right source.
A. Mark up B. receiving C. purchasing D. cost

4. To calculate percent mark-up based on cost is done by dividing the peso mark –up by _?

A. selling price B. cost C. selling D. price

5. To calculate your peso mark –up, this is done by subtracting your price from your____.
A. selling price B. Peso mark –up C. buying price D. cost
6. Calculate your percent mark –up based on selling price, this is done by dividing the peso
mark up by the _____.
A. selling price B. peso mark up C. buying price D. cost
7. If the peso mark-up is P5.00 and the selling price is P15.00.How much is the percentage
mark-up?
A. 35% B. 33% C. 40% D. 50%
8. If the selling price is P15.00 and he purchase cost is P10.00, how much is the peso mark
–up?
A. P10.00 B. P5.00 C. P15.00 D.P20.00
9. The peso mark-up is P 5.00 and the purchase cost is P10.00, how much is the
percentage mark-up?
A. 50% B. 15% C. 5% D.55%
10. You have 2 kilos chicken with a unit cost of P115.00/ kilo. How much is the total cost of
the chicken?

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 A. P115.00 B. P230 C. P215 D. P200

Activity 1: “Word Puzzle”

How to calculate percentage mark up?

Directions: In the puzzle below you will find the term used in computing cost of production.

O D D A B U D O Y G A M F O
F G A B U E I M B X A F G Y
C T R E Y T O T K R O F F H
S E L L I N G R K F V H K S
O W E F N A D U P G C O S T
C C N C G U P A E H B T D A
O P E R C E N T S F D Y H A
C V Y A F C O C O U D U H T

What is it

How to calculate percentage mark-up?

Cost of production refers to the total cost incurred by a business to produce a specific
quantity of a product or offers a service. Production costs may include things such as labor, raw
materials, or consumable supplies. In economics, the cost of production is defined as the
expenditures incurred to obtain the factors of production such as labor, land, and capital, that
are needed in the production process of a product.

Mark-up is the difference between how much an item costs you, and how much you
sell that item for--it's your profit per item. Any person working in business or retail will find the
skill of being able to calculate mark-up percentage very valuable.
\

Price is the value that a retailer sets for the article for sale. It is the amount of money paid
for goods or services. Prices of goods are never the same. They are affected by the supply and
demand of goods, the season of the year, the quality of goods, and competition from others
stores. Pricing of merchandise should be reasonable and acceptable.

Mark up refers to the margin or difference between the cost price and the selling price of
an item. Costumers are attractive to store that sell goods at lower prices than other stores. The
fact is that even with a small margin; the store owner can still make some profit if he sells his
goods fast and increase the volume of his sales.

Instructions:
1. Calculate your peso mark-up. This is done by subtracting your buying price from your
selling price.
Example
Selling price 15.00
Purchase cost/buying price - 10.00
Peso mark-up 5.00
2. Decide whether you want to calculate your percentage mark-up based on cost or
selling price. Once you choose which you will be using to calculate, it is important

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you stick to the method you choose throughout all your calculations, or you will end
up with faulty data. If you decide to calculate your percent mark-up based on cost, go
on to Step 3. If you decide to calculate your percent mark-up based on selling price,
go on to Step 4.

3. Calculate percent mark-up based on cost. This is done by dividing the peso mark-up
by the cost
.
Example
Peso mark-up 5.00
Purchase cost/buying price ÷10.00
Percentage mark up .5 or 50%

4. Calculate your percent mark-up based on selling price. This is done by dividing the
peso mark-up by the selling price.
Example
Peso mark-up 5.00
Selling price ÷15.00
Percentage mark up .33 or 33%
5. Make sure you consistently use either cost of the product or selling price to find the
percent mark-up on an item. Even though the cost, selling price, and peso mark-up will
always be the same, the percentage mark-up will be drastically different depending on
if you calculate it using selling price or cost. Using selling price will give you a lower
percentage mark-up (assuming you are making a profit), while using cost will give you
a higher percentage mark-up.

If you are assigned to sell sandwiches prepared by your class, how would you price
your merchandise? The sandwiches are priced by adding the cost of materials and the
percentage of profit or the mark up you place on the product.

For Example:
The cost of materials for your sandwiches is P80.00. If you want to impose a 10% mark
up, multiply P80.00 by 10%. You expect a profit or mark up of P8.00
To get the selling price, add the cost of materials plus 10%mark up, then divide by the
number of sandwiches made. You will get the selling price of each sandwich. Here’s how it is
done:
Cost of materials P80.00
10% mark up 8.00
Total 88.00
P88.00 divided by 20 (number of sandwiches made) = Selling price

Selling price per sandwich is P4.40. To make your product attractive, the profit or mark
up must not be very much.

Mark up for any item sold at the market is determined by:

1. Knowing the selling price.
2. Determining the purchase price and other expenses.
3. Subtract from 1 and you get the mark up or profit.

For Example:

Selling price of one can milk P18.00

Less purchase price and incidentals 15.00
Mark-up 3.00

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 Therefore P3.00 is the profit or mark up
P15.00 x 100% = 20% mark up

Activity 2: “Compute Me”

Directions: Given the following items and its estimated cost, compute the peso mark up and
percentage mark –up in each item. Write your answer in a separate sheet.

Purchase
Percentage
Items cost/buying Selling price Peso mark up
mark up
price
1. Calamay 50.00 75.00
2. Puto 30.00 40.00
3. Biko 5.00 10.00
4. Sapin-sapin 25.00 55.00
5. Halaya 55.00 110.00

Activity 3: “Complete Me”

Directions: Given the following recipe and its estimated cost, compute for the purchase
cost and impose 50% mark-up to determine the selling price of your product. Yield=20 servings.

Item Unit cost Total cost Peso mark up Selling price

per serving
1K Flour 40.00/kilo
1kilo white 45.00/kilo
sugar
½ bar butter 45.00/bar
3pcs eggs 7.00/each
1pack vanilla 5.00/pack
1big can milk 30.00/can
Total

Activity 4: “Let’s Explore”

Directions: Compute the total cost in each ingredient based on quantity and the unit cost.

Quantity of ingredients Unit cost Total cost

1 kilos rice 45.00
1 ½ kilo white sugar 55.00
2 cans evap. Milk 27.00
½ kilo sago 30.00
1 ½ kilo banana 25.00

Summary:

How to Calculate Mark-up Percentage

Mark-up is the difference between how much an item costs you, and how much you
sell that item for--it's your profit per item. Any person working in business or retail will find the
skill of being able to calculate mark-up percentage very valuable.

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 If you are assigned to sell sandwiches prepared by your class, how would you price your
merchandise? The sandwiches are priced by adding the cost of materials and the percentage of
profit or the mark up you place on the product.

Assessment: Multiple Choice

Directions: Read the sentence carefully and choose the letter of the correct answer. Write your
answer on a separate sheet of paper.

Given the following recipe and its estimated cost, compute for the total purchase cost
and impose a 50% mark up to determine the selling price of your product. Yield=24 servings

Item Unit cost Total cost Peso mark up Selling price

per serving
2K chicken 115.00/kilo
1 head of garlic 50.00/kilo
20pcs/kilo
4tbsp soy 15.00/bottle
sauce Approx. 32T
1tsp ground 1.00/small pack
black pepper 1/2t/pack
½ cup vinegar 12.00/bottle
Approx.
2C/bottle
2tbsp cooking 40.00/bottle
oil Approx.32T
Total

1. What is the formula in solving selling price.

a. SP=total cost + peso mark-up
b. SP=total cost - peso mark-up
c. SP=total cost x peso mark-up
d. SP=total cost / peso mark-up
2. How much is total cost of 2 kilo chicken?
a. P230 b. P215 c. P200 d. P115
3. How much is total cost of garlic?
a. 5.00 b. P 2.50 c. P250 d. P 50
4. How is the unit cost
a. P1.25 b. P 2.50 c. P40 d.P32
5. How much is the unit cost of soy sauce?
a. P 15.00 b. P16.00 c. P0.46 d. P 1.88
6. How much is the estimated total cost of the recipe?
a. P 241.88 b. P253.00 c. P 240.00 d. P250
7. How many will servings produce in a recipe?
a. P24.00 b. P 20.00 C. P18.00 d. P21.00
8. How much is the 50% of the total cost?
a. P220.00 b. P120.94 c. P121.50 d. P240.00
9. How much is the selling price?
a. P10.00 b. P60.00 c. P121.00 d. P 160
10. How much is the peso mark –up?
a. P 20.00 b. P60 .00 c. P121.00 d. P 160.00

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