MATHEMATICS OF RETAILING

LEARNING OUTCOMES

By the end of this chapter, you should be able to

1. explain retail price, cost price, markup and markdown

2. compute markup and markdown per cent
3. compute gross profit, operating expenses, net profit and breakeven price
4. determine the selling price of a good

INTRODUCTION

Retailers are in the business of buying and selling goods for profit. Some of terms involved in
retailing are

a) Selling price: the price of merchandise being sold (also known as retail price)

b) Cost: the price paid for merchandise which include net price, buying expenses, transportation,
and handling goods.

Markup

Markup: the increment in the selling price to gain profit.

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 (𝑟𝑒𝑡𝑎𝑖𝑙 𝑝𝑟𝑖𝑐𝑒) = 𝐶𝑜𝑠𝑡 + 𝑀𝑎𝑟𝑘 𝑢𝑝

Example A

1. A retailer bought a belt that cost RM50 and plan to sell the belt at RM65.90. Find
(i) the markup amount,

mark up = 65 .90 − 50 = RM 15 .90

(ii) the markup percentage based on selling price, and

15 .90
mark up % = x 100 = 24 .13 %
65 .90

(iii) the markup percentage based on cost price.

15 .90
mark up % = x 100 = 31 .8%
50

2. The cost of a refrigerator is RM3,000. If the seller wants a 20% markup based on the cost, find
(i) markup

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 mark up = 0.2 x 3000 = RM 600

(ii) retail price.

RP = Cost + Mark up
retail price = 3000 + 600 = RM 3600

3. Retail price of a television LED is RM3,900. A retailer would like to markup about 15% based
on the retail price, find
(i) Markup

mark up = 0.15 x 3900 = RM 585

(ii) cost.

cos t = RP − markup = 3900 − 585 = RM 3315

4. Little Kitchen produces 1000 muffins per day, which cost RM0.50 each. If the owner wants to
markup 30% based on cost of each muffin, find
(i) the retail price of one muffin,

mark up = 0.3(0.50 ) = 0.15

retail price = 0.50 + 0.15 = RM 0.65

(ii) the overall income for a day if only 80% of the muffins sold.

0.8(1000 ) = 800 muffins

Total Income = 800 (0.65 ) = RM 520 = Total Sales

Markdown

The reduction from the selling price. Also known as trade discount.

𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 – 𝑁𝑒𝑤 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒

𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛
% 𝑜𝑓 𝑚𝑎𝑟𝑘𝑑𝑜𝑤𝑛 = × 100%
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒

If using the formula from trade discount;

Trade discount amount = 𝐿𝑟

𝑁𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 = 𝐿(1 − 𝑟)

Therefore:

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Original selling price = List price
New selling price = Net price
Markdown = trade discount amount
% of markdown = discount rate

Example B

1. The markdown value of a blouse is RM5.50. If the previous selling price is RM59, find the new
selling price.

NSP = OSP − markdown = 59 − 5.50 = RM 53.50

2. Percent markdown of a watch is 10%. If the new selling price is RM500, find the old selling
price of this watch.

Net price= L(1-r)

NSP = OSP (1 − r )
500 = OSP (1 − 0.1)
500
OSP = = RM 555 .56
1 − 0.1

3. Yannie produces 1,500 cupcakes per day, which cost RM1.50 each. If the owner wants to
markup 40% based on cost of each cupcake, find
(i) the retail price of each cupcake,

retail price = 1.50 + 0.4(1.50 ) = RM 2.10

(ii) Suppose 100 cupcakes were not sold. To sell off the remaining cupcakes, the retailer
gave 10% discount from the original selling price. Find the total income for that day.

NSP = 2.10(1 − 0.1) = RM1.89

Total Income = 1400 (2.10 ) + 100 (1.89 ) = RM 3129

Profitability and Loss

List price: Price that is listed or displayed

Operating Expenses: the expenses incurred in the running of a business

Net Profit: the amount left after deducting operating expenses from the markup.

Breakeven: the retail price which, there is no gain or lost.

Formulae

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = 𝐶𝑜𝑠𝑡 + 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

Since

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 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑀𝑎𝑟𝑘 𝑢𝑝
Thus,
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 (𝑜𝑟 𝑟𝑒𝑡𝑎𝑖𝑙 𝑝𝑟𝑖𝑐𝑒) = 𝐶𝑜𝑠𝑡 + 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐶𝑜𝑠𝑡 + 𝑀𝑎𝑟𝑘 𝑢𝑝

To determine whether gain profit of suffer loss, then the following formula should be used:

𝑃𝑟𝑜𝑓𝑖𝑡/𝐿𝑜𝑠𝑠 = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑃𝑟𝑖𝑐𝑒 = 𝑀𝑎𝑥 𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛

where
𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑝𝑟𝑖𝑐𝑒 = 𝐶𝑜𝑠𝑡 + 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
if
Net profit> 0, then, it is a profit
Net profit = 0, then, it is a break-even
Net profit< 0, then, it is a loss

Example C

1. A computer table is purchased for RM120. Operating expenses amount to 30% of the cost. If
the retailer wants a 15% net profit based on cost, find
(i) the net profit,

net profit = 0.15(120 ) = RM18

(iii) the retail price,

OE = 0.3(120 ) = RM 36
retail price = 120 + 36 + 18 = RM174

(iv) gross profit,

gross profit = 36 + 18 = RM 54

(v) break-even price,

Breakeven = 36 + 120 = RM156

(vi) the maximum markdown (max discount) given,

max markdown = 174 − 156 = RM 18 , because NSP=174-20=154 (Loss RM2)

(vii) if the retail price is RM220, find the profit or loss.

profit = 220 − 156 = RM 64

2. A retailer bought a camera for RM5,600. The operating expenses amount to 15% of the cost.
If the retailer wants a 20% net profit based on selling price, find
(i) the operating expenses,

OE = 0.15(5600 ) = RM 840

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 (ii) the retail price,

RP = 5600 + 840 + 0.2 ( RP )

1RP − 0.2 RP = 6440
0.8RP = 6440
6440
RP = = RM 8050
0.8

(iii) gross profit,

gross profit = 840 + 0.2(8050 ) = RM 2450 @ 8050 – 5600 = RM2450

(iv) break-even price,

Breakeven = 5600 + 840 = RM 6440

(v) the maximum markdown rate,

max markdown = 8050 − 6440 = RM1610

1610
max markdown rate = 𝑥100 = 20%
8050

(vi) if the retail price is RM6020, find the profit or loss.

Loss = 6020 − 6440 = RM 420

Trade discount and Mathematics of Retailing

Cost: the price paid (or amount paid or amount of payment) for merchandise which include net
price, buying expenses, transportation, and handling goods.

Example D

1. An invoice dated 22 September 2012 was received for the purchase of 15 units of printers. The
invoice was worth RM9,800 including the transportation cost and insurance charges of RM260.
Trade discount of 6% and cash discount terms of 3/15, 2/25, n/30 were offered in the invoice. If
the printers were sold back with net profit of 15% based on the selling price and operating
expenses of 7% based on the cost. Calculate

(i) the amount of payment made on 7 October 2012.

(30-22)+7=15 days →3% cash discount

L(1-r)(1-c)+Other costs=Amount of Payment

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 (9800-260)(1-0.06)(1-0.03)+260 = RM8958.57 (Recall topic trade & cash discounts)

(ii) the selling price of each printer.

SP = C+OE+NP
SP = 8958.57 + 0.07(8958.57) + 0.15SP (Cost=amount of payment)
SP-0.15SP = 8958.57+627.10
0.85(SP) = 9585.67
SP = RM11277.26
SPeach = RM751.82

(iii) the breakeven price of each printer.

BEP = 8958.57 + 627.10

BEP = 9585.67
BEPeach =RM639.04

(iv) the maximum percentage of markdown that can be offered to avoid loss.

Max markdown = 751.82 – 639.04 =112.78

% max markdown = 112.78 / 751.82 x 100 = 15%

Exercise

1. Steady Music Center purchased 10 units of the original CD at RM29.90 each. If the seller
wishes to make a net profit of 12% based on the selling price and the operating expenses were
RM3 per unit, find (i) the selling price of each original CD, (ii) the total gross profit made by the
seller.
RM37.39; RM74.90
2. A retailer purchased 20 toasters at a list price of RM40 each and was offered trade discounts of
10%, 8%. He then sold the toasters with a gross profit of 75% based on the cost. If the
operating expenses was 15% based on the selling price, find (i) the net price of each toaster
after the trade discounts, (ii) the selling price of each toaster, (iii) the breakeven price of each
toaster, (iv) the maximum markdown of each toaster that could be given without incurring any
loss.
RM33.12; RM57.96; RM41.81; RM16.15

3. A retailer bought a massage chair for RM5,000. Operating expenses incurred were 5% based
on cost. The retailer wanted a 10% net profit based on cost. (i) Calculate the selling price, (ii)
Calculate the mark-up percent based on the selling price, (iii) Calculate the breakeven price, (iv)
If the selling price was marked down by 10% and later sold. Did the retailer suffer any loss?
RM5750; 13.04%; RM5250; LOSS:RM75

4. The owner of a shop bought a living room set at RM2,800. The operating expenses of selling
the set are 25% of the cost. If the seller wants a net profit of 15% on the cost, calculate the (i)
selling price of the living room set, (ii) gross profit obtained, (iii) breakeven price, (iv) maximum
percentage of markdown that can be offered without incurring any loss. (v) If the seller sets the
selling price at RM3,600, how much is the net profit.
RM3920; RM1120; RM3500; 10.71%; Net profit:RM100

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5. A retailer bought a treadmill for RM2,000. Operating expenses incurred were 5% based on cost.
The retailer wanted a 10% net profit based on cost. Find (i) the selling price, (ii) mark-up
percent based on the selling price, (iii) the breakeven price, (iv) the new selling price and the
total net profit or loss if the retailer sold the treadmill at10% markdown.
RM2300; 13.04%; RM2100; RM2070;LOSS:RM30

6. A retailer bought 10 mowing machines at RM888 each. He was offered trade discounts of 10%,
5% and the credit terms were 4/10, n/30. He also had to pay RM60 for transportation costs.
Later, he sold these machines with a mark-up of 30% on selling price. For each machine, the
net profit obtained was RM95. Find (i) the total payment made for all the machines ten days
from the date of invoice, (ii) its selling price, (iii) its breakeven price, (iv) its maximum markdown
rate that can be offered without incurring any loss, (v) the amount that the retailer would gain or
loss if he offered a discount of 10%.
RM7348.70; RM1049.81; RM954.81; 9.05%; LOSS:RM9.981

7. A trader bought 20 football jerseys listed at RM5,000 with trade discounts of 20% and 10%. If
he sold the jerseys at a net profit of 30% based on cost and the operating expenses were 5%
on cost, find (i) the amount paid by the trader, (ii) the selling price for each jersey, (iii) the
breakeven price for each jersey, (iv) the amount that the trader would gain or lose if he offers a
discount of 15%.
RM3600; RM243; RM189; GAIN: RM351

8. Salleh received an invoice for the purchase of 500 ceramic plates for RM 25,200 on 31st
January 2012. Trade discounts were 5% and 2% and the cash discount terms were 10/20, 5/30,
n/60. He paid the invoice on 19th February 2012. He planned to sell the item by allowing 10%
of cost for operating expenses and 15% of selling price for gross profit. (i) Find the payment
on 19th February 2012. (ii) Find the selling price and the net profit for each ceramic plate. (iii)
After a few months, Salleh managed to sell 450 ceramic plates. The remaining ceramic plates
were sold by allowing 20% markdown. Calculate the total sales made by Salleh if all the
remaining ceramic plates were sold.
RM21115.08; RM49.68; RM3.23; RM24343.50

9. A merchant purchased 10 units of computer notebooks that cost RM1800 each on 21st July
2013. He was offered a trade discounts of 10% and the cash discount terms were 5/20, n/60.
He paid the invoice on 15 days after the date of purchase. The operating expenses were 5%
based on cost. The shop wanted to sell the notebooks by making a gross profit of 20% based
on selling price. (i) Find the selling price of each notebook. (ii) Compute the breakeven price for
each notebook. (iii) If the shop managed to sell 7 units at the above selling price and sold the
remaining at 10% markdown, calculate the total net profit.
RM19237.50; RM16159.50; RM170444.25

10. An owner of a laundry shop received an invoice for purchasing 200 bottles of liquid detergent at
RM15 each, and 300 bottles of fabric softener at RM8 each. The invoice dated on 6th August
2010. He was offered trade discount 10% and 8%, with cash discount 10/10, 5/20, n/30. The
owner then paid the invoice on 21st August 2010 and sold all the items. If the owner sold the
items with 10% net profit based on cost of all items and 15% operating expenses based on cost
of all items, calculate (i) the amount of payment on 21st August 2010 (ii) the selling price of a
bottle of liquid detergent and a bottle of fabric softener.
RM4247.64; RM17.11; RM9.83

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