Topic 1 Topic: Mathematics of Buying And Selling • To calculate net cost/price

with given trade and cash

• Trade & Cash Discounts discounts
• Mark-up & Mark-down • To calculate mark-up base
• Break-Even, Profit & Loss on cost
• To calculate mark-up base
on the selling price
• To calculate breakeven,
profit, operating loss &
absolute loss

Why This Topic

This topic introduces the students to the topics of mathematics of buying which includes trade and cash discounts
and mathematics of selling which includes mark up, mark down and also the break-even analysis. Students will
be able to identify the problem clearly; plan how to solve the problem; and then apply the appropriate methods
to evaluate and solve the problem.

Trade & Cash Discounts

Trade Discounts

Trade discounts are given to businesses or retailers who buy items for resale. The seller or wholesaler usually prices
an item with its list price and gives a trade discount. The trade discount is deducted from the list price and the
result is called net cost or net price. The net cost formula is as follows:

Net cost = List price – Trade discount

Example:

The list price of a Myojo air fryer is $799, and the trade discount is 25%. Find the net cost.

Solution:

Trade discount = 35% of $799 = $188.75

Net cost = $799 -$199.75 = $599.75

Sometimes the seller would offer two or more discounts that are combined into a series or chain discount. A series
discount refers to more than one discount. For example, the series discount of 20/10/ 5 means applying the first
20% discount then applying the second discount of 10%, and lastly applying the third discount of 5%. Trade
discounts change often due to price changes, size of orders changes with suppliers, seasonal fluctuations, or
even due to competition.

Calculation of discount using net cost equivalent are as follows:

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 1. Find the complement of each discount in a series discount
2. Multiplying the complements to get the net cost equivalent

The net cost is the list price multiply by the net cost equivalent.

Example:
Kitchen Crafters is offering a series discount of 20/10 on a George Foreman Grilling Machine with a list price of
$139.99. Find the net cost after the series discount.

Step 1 Discount Decimal Find Complement

20% 0.2 1 – 0.2 = 0.8
10% 0.1 1 – 0.1 = 0.9

Step 2 Net cost equivalent = 0.8 × 0.9 = 0.72

Step 3 Net cost after discount

= List price × Net cost equivalent
= $139.99 × 0.72 = $100.79

To find the actual discount, subtract the net cost after the discount from the original price.
Discount = Original price – Net cost after discount
= $139.99 – $100.79
= $39.20

Series or chain discounts are often expressed as a single discount rate.

Single discount equivalent: subtract the net cost equivalent from 1
Write it as a percent

Single discount equivalent = 1 – Net cost Equivalent

Example 1:
Find the single discount equivalent if Spectral Heating offers a 20/10 discount on all heating systems.
Series discount: 20 / 10
0.8 0.9
0.8 × 0.9 = .72 net cost equivalent
1.00 – 0.72 = 0.28

The single discount equivalent of a 20/10 series discount is 28%.

Sometimes the net cost after trade discounts is given, along with the series discount, and the list price must be
found.

Example 2:
Find the list price of a Kohler kitchen sink that has a net cost of $243.20 after trade discounts of 20/20. Use a net
cost equivalent.

Find the percent paid, using complements.

20 / 20
0.8 × 0.8 = 0.64

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 R × B = P
64% of list price = $243.20
B = P/R = 243.20/0.64 = $380

The list price of the sink is $380.

Example 3:

Find the list price of a Bunn 10-cup Generation home brewer having a series discount of 10/30/20 and a net cost
of $60.48. Use complements to find the percent paid.

10 / 30 / 20
0.9 × 0.7 × 0.8 = 0.504
B = P / R = 60.48 / 0.504 = $120
The list price of the Bunn home brewer is $120.

Cash Discounts

Cash discounts are offered to encourage prompt payment by customers. “Pay me quickly and receive a
discount.” Businesses often borrow money for day-to-day operations. Immediate cash payments decrease the
need for borrowed money.

Finding the Net Cost

Net Cost =
(List price – Trade discount) – Cash discount

Ordinary Dating Method

Ordinary Dating Method expressed on an invoice as:

2/10, n/30 or 2/10, net 30

Read as “two ten, net thirty”. A 2% discount applies if paid within 10 days. Full invoice must be paid within 30 days.
If not, a penalty may apply.

Use the number of days given in the chart.

30-Day Months 31-Day Months Exception

April January, March February
June May, July (28 days,
September August 29 in a leap year)
November October December

Determine whether cash discounts are earned.

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Find the date due by counting from the next day after the date of the invoice. Add the given number of days to
the starting date. When the discount date or net payment date falls in the next month.

Subtract the invoice date from the number of days in the month. Subtract that result from the total number of
days given to pay. That result is due date in the next month.

Example 1:

A Hershey invoice is dated January 2 and offers terms of 2/10, net 30. Find:
(a) the last date on which the 2% discount may be taken
Beginning with the invoice date, January 2, the last date for taking the discount is January 12 (2 + 10).

(b) the net payment date.

February 1, (31 – 2 = 29 days remaining in January plus 1 day in February.)

Example 2:

An invoice received by Bed Bath & Beyond for $840 is dated July 1 and offers terms of 2/10, n/30. If the invoice is
paid on July 8 and the shipping and insurance charges, which were FOB shipping points are $35.60, find the total
amount due.

Since the invoice was paid in 7 days (8 – 1 = 7), which is less than the 10-day requirement identified by 2/10, the
2% cash discount applies.

Cash discount = 2% of $840 = $16.80

Amount due = invoice amount – Cash discount
= $840 – $16.80
= $823.20

The shipping and insurance charges must be added to the amount due.
Total = Amount due + Shipping and Insurance
= $823.20 + $35.60
= $858.80
The total amount due is $858.80

Use Postdating When Calculating Cash Discounts

Invoice may be postdated, or dated in the future. Gives purchaser more time to take the cash discount. May fit
accounting practices of seller. Seller uses date that is after actual invoice date, labels it AS OF.

Example 3:
An invoice for a shipment of Henkels cutlery from Germany is dated October 21 AS OF November 1 with terms of
3/15, n/30. Find:

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(a) the last date on which the cash discount may be taken. Beginning with the postdate (AS OF) of November
1, the last date for taking the discount is November 16 (1 + 15).
(b) the net payment date December 1 (29 days remaining in November and
1 day in December).

Example 4:
An invoice from Cellular Products is dated May 18 and offers terms of 4/10, 3/25, 1/40, n/60. Find:

(a) the three final dates for each cash discount:

4% if paid by May 28 (10 days, May 18)
3% if paid by June 12 (25 days, May 18)
1% if paid by June 27 (40 days, May 18)

(b) the net payment date:

The net payment date is July 17 (20 days beyond the cash discount period).

Cash Discount Problems with End-of-Month Dating

End-of-month and proximo dating, abbreviated EOM and prox. Number of days counted from end of the month
in which invoice is dated 3/10 EOM and 3/10 prox. both mean: 3% may be taken as cash discount if paid by 10th
of the month that follows the sale.

If invoice date is the 26th or later, add an extra month:

Example: 3/10 EOM dated March 25, then last date for discount is April 10
Example: 3/10 EOM dated March 26, then last date for discount is May 10

Example 1:
If an invoice from Oster is dated June 10 with terms of 3/20 EOM, find:
a. the final date on which the cash discount may be taken and

The discount date is July 20 (20 days after the end of June).

b. net payment date

When no net payment due date is given, common business practice is to allow 20 days after the last
discount date. The net payment date is August 9, which is 20 days after the last discount date (July 20),
since no net payment date is given.

Example 2:
Find the amount due on an invoice of $782 for some Black and Decker Belgian waffle makers dated August 3, if
the terms are 1/10 prox. and the invoice was paid on September 4. The last date for the discount is September
10 (10 days after the end of August). September 4 is within the discount period, so the discount is earned.

Discount = 1% of invoice amount

= 0.01 × $782 = $7.82

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 Amount due = invoice amount – discount
= $782 – $7.82 = $774.18

Receipt-of-Goods Dating to Solve Cash Discount Problems

Receipt-of-goods abbreviated as ROG. Offers cash discount determined from the date on which goods are
received. Often used when shipping time is long. Invoice may arrive immediately (Internet) but goods may take
weeks to arrive. Buyer is given time to inspect merchandise.

Example:
Best Buy received an invoice dated December 12, with terms of 2/10 ROG. The goods were received on January
2. Find:

a. the final date on which the cash discount may be taken :

The discount date is January 12 (10 days after receipt of goods, January 2 plus 10 days).

b. the net payment date:

February 1 (20 days after the last discount date).

Example:
Find the amount due on a FedEx invoice for $285 with terms of 3/10 ROG. The invoice is dated June 8, the goods
are received June 18, and the invoice is paid June 30. The last date to take the 3% cash discount is June 28, 10
days after June 18. The invoice is paid on June 30, 2 days after the last discount date, no cash discount may be
taken. The entire amount of the invoice must be paid. The amount due is $285.

Extra Dating to Solve Cash Discount Problems

Extra dating (extra, ex, or x)

Buyer has additional time to take advantage of cash discount. Suppliers during slow seasons might offer it to
generate more sales or gain a competitive advantage.

Example:
An invoice for several drones is dated November 23 with terms of 2/10–50 ex. Find
a. the final date on which the cash discount may be taken

The discount date is January 22 (7 days remaining in November + 31 days in December = 38; thus, 22 more
days are needed in January to total 60).

b. the net payment date

February 11 (20 days after the last discount date)

Example:
An invoice from Wind Turbines & Solar Inc is dated August 5, amounts to $8180, offers terms of 3/10–30 x, and is
paid on September 12. Find the net payment.

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Step 1: The last day to take the 3% cash discount is September 14 (August 5 + 40 days = September 14). Since the
invoice was paid on September 12, the 3% discount may be taken.

Step 2: The 3% cash discount is computed on $8180, the amount of the invoice. The discount to be taken is
$245.40

Step 3: Subtract the cash discount from the invoice amount to determine the amount of payment.
$8180.00 invoice amount
– $245.40 3% cash discount
$7934.60 amount of payment

Mark-up & Mark-down

Cost is the amount paid to the manufacturer or supplier after trade and cash discounts have been taken.
Shipping and insurance charges are included in the cost.

The selling price is the price at which merchandise is sold to the public.

Markup margin, or gross profit is selling price minus cost.

Operating expenses, or overhead, include the expenses of operating the business, such as wages, rent for
buildings and equipment, utilities, insurance, and advertising.

Net profit (net earnings) is gross profit minus operating expenses.

The basic markup formula that follows shows that the selling price is the sum of the cost and the markup.
Selling Price = Cost + Markup
S = C + M

REI received three different items used by snowboarders. Use the basic markup formula to find the unknown for
each of the following:

a) $34.48 (C) + $13.40 (M)= $47.88 (S)

b) $83.82 (C) + $41.17 (M)= $124.99 (S)
c) $159.07 (C) + $68.17 (M)= $227.24 (S)

Mark-up based on Cost

Markup on cost: markup is stated as a percent of the cost. Application of basic percent equation. The base is
cost, or 100%

Markup on Cost = Amount of Markup

Cost

Apply Percent to Markup Problems

Use the formulas:

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Markup = Selling price – Cost
Markup as a percent of Cost = Markup ÷ Cost
Selling price as a percent of Cost= Selling price ÷ Cost

State the markup as a percent

Example:
A discount store bought hiking boots manufactured in Mexico for $60 and plans to sell them for $81 a pair. Find
the percent of markup based on cost
Cost is the base or 100%. All other percents must be in terms of cost.

100% C $60
?% M $?
?% S $81

Find the unknown values as follows:

Markup = Selling price – Cost
= $81 – $60 = $21

Markup percent = Markup ÷ Cost = $21 ÷ $60 = 35%

Selling price percent = 100% + Markup %
= 100% + 35% = 135 %
Markup based on cost is 35% and selling price is 135% of cost.

100% C $60
35% M $21
135% S $81

Example:
Dick’s Sporting Goods puts a markup on a dumbbell set of $16, which is 50% of the firm’s cost. Find the cost and
the selling price.
Cost is the base, or 100%. The cost is not known

100% C $?
50% M $16
?% S $?
Find the cost using the fact that a markup of $16 is 50% of the cost.
Markup = 50% × Cost
$16 = 0.5 × C

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Divide both sides of the equation by 0.5
C = $16 ÷ .5 = $32
Complete the table by adding the percent and dollar columns to find the totals.

100% C $32
+ 50% M $16
150% S $48

The cost to the retailer is $32, the selling price is $48, or 150% of the cost.

Example:

Find the markup and the selling price for a belt if the cost is $23.60 and the markup is 45% of cost.
Cost is the base or 100%. Cost is known.

100% C $23.60
45% M $?
?% S $?
The percent column totals 145%. Use the basic percent equation to find the following.
M = 45% of Cost = 0.45 × $23.60 = $10.62

Example:

Find the markup and the selling price for a belt if the cost is $23.60 and the markup is 45% of the cost
Cost is the base or 100%. Cost is known

100% C $23.60
45% M $?
?% S $?
The percent column totals 145%. Use the basic percent equation to find the following.
M = 45% of Cost = .45 × $23.60 = $10.62

Example:
The selling price of the belt is $34.22.

100% C $23.60
+ 45% M $10.62
145% S $34.22

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Example:
The retail price of a 54-inch portable basketball system is $549.99. The retailer has operating expenses of 29.5%
and wants a 5.5% profit, both based on the cost of this item. First, find the total percent of markup on cost, then
find the cost and markup.
Add operating expense and profit percents to find the percent markup on cost required by the retailer.

Markup on cost = operating expense + profit

= 29.5% + 5.5% = 35%

Now set the problem up in table form

100% C $?
35% M $?
?% S $549.99
The percent total is 135%. Find the base.

Cost = Selling Price = $549.99 = $407.40

Rate 1.35
Markup = Selling price – Cost
= $549.99 – $407.40 = $142.59

100% C $407.40
+ 35% M $142.59
135% S $549.99
The cost is $407.40 and the markup is $142.59.

Mark-up based on Selling Price

Retailers often compare business operations to sales revenue and therefore, they often prefer to use markup on
selling price. In this case, markup is stated as a percent of selling price.

Markup on Selling Price = Amount of Markup

Selling Price

The same basic markup formula is used when using markup on selling price:

C + M = S.

Solve Markup Problems when Selling Price is the Base

Selling price is the base, or 100%

?% C $?

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?% M $
100% S $ base

Example:
During a sale, REI sells one model of kids sunglasses for $39.99. They pay $35 for each pair and calculate markup
on selling price. Find the amount of markup, the percent of markup on selling price, and the percent of cost on
selling price.

Set up the problem. Selling price is base.

? % C $35.00
?% M $?
100% S $39.99
Markup = Selling price – Cost
= $39.99 – $35 = $4.99

Solve for either of the rates and subtract the result from 100% to find the other.
Markup
Rate =
Selling price
$4.99
= = 12.5%
$39.99

Cost as a percent of selling price can be found either by subtracting 100% – 12.5%, or by dividing the cost of $35
by the selling price of $39.99
87.5% C $35.00
12.5% M $4.99
100% S $39.99
Here, selling price is the base and is associated with 100%. The markup in this example is very low—REI will probably
take a loss on these sunglasses, but managers hope the low price will bring customers into the store.

The basic formula may be used for all markup problems in which selling price is the base. The selling price has a
percent value of 100%.

Example:
A Walmart employee needs a 35% markup on selling price in order to have a markup of $5.16 on a bottle or
aspirin. How much can Walmart pay per bottle?

Cost as a percent of selling price is found by subtracting 35% from 100% to find 65%.

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 65% C $ ?
35% M $5.16
100% S $ ?
Find the selling price as follows.
Markup = 35% of selling price
$5.16 = .35 × S

Divide both sides by .35 to find the selling price.

S = $5.16 ÷ .35 = $14.74
Finally, find the cost by subtracting.
C = S – M = $14.74 – $5.16 = $9.58

The final table is shown here.

65% C $9.58
35% M $5.16
100% S $14.74

Example:
Find the markup on a dartboard made in England if the cost is $27.45 and the markup is 25% of selling price
Subtract 25% from 100% to find that cost is 75% of selling price.

75% C $27.45
25% M $ ?
100% S $ ?
Cost = 75% of selling price
$27.45 = .75 × S
S = $27.45 ÷ .75 = $36.60

Finally:
Selling price – Cost = $36.60 – $27.45
= $9.15

Here is the completed table.

65% C $27.45
35% M $ 9.15
100% S $36.60
Determine the Percent Markup on Cost and the Equivalent Percent Markup on Selling Price

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Salesperson who sells to both manufacturers and retailers will compare markup on cost with markup on selling
price. May have to make conversions between the two methods.

Example:
A manufacturer makes and sells fishing lures. One lure has a cost of $2.10 and is sold to distributors and wholesalers
for $3.20. Find the percent markup on cost and also the percent markup on selling price.

Set up using cost as the base, or 100%.

100% C $2.10
?% M $ ?
? % S $3.20

Markup = S – C = $3.20 – $2.10 = $1.10

Markup as a percent of cost = $1.10 ÷ $2.10 = 52.4%
Selling price as a percent of cost = 100% + 52.4% = 152.4%

Set up using selling price as the base, or 100%.

? % C $2.10
? % M $1.10
100% S $3.20

Cost as a percent of selling price = $2.10 ÷ $3.20 = 65.6%

Markup as a percent of selling price = 100% – 65.6% = 34.4%

This example shows that a 52.4% markup on cost results in the same dollar markup as a 34.4% markup on selling
price. In other words, a 52.4% markup on cost is equivalent to a 34.4% markup on selling price.

Convert Markup Percent on Cost to Markup Percent on Selling Price

Another method for markup comparisons is to use the conversion formulas.

% markup on cost
100% + % markup on cost
= % markup on selling price

Example:
Convert a markup of 25% on cost to its equivalent markup on selling price.
Use the formula for converting markup on cost to markup percent on selling price.

25% 25% .25

= = = .20 = 20%
100% + 25% 125% 1.25

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A markup of 25% on cost is equivalent to a markup of 20% on selling price.

Convert Markup Percent on Selling Price to Markup Percent on Cost

Another method for markup comparisons is to use the conversion formulas
% markup on selling price
100% - % markup on selling price
= % markup on cost

Example:
Convert a markup of 20% on selling price to its equivalent markup on cost.
Use the formula for converting markup on selling price to markup on cost.

20% 20% .20

= = = .25 = 25%
100% − 20% 80% .80

A markup of 20% on selling price is equivalent to a markup of 25% on cost

Markup Equivalents

Markup on Cost Markup on Selling Price

20% 16 2/3%
25% 20%
50% 33 1/3%
75% 42 6/7%
100% 50%

Finding the Selling Price for Perishables

Some items will spoil, cannot be sold, and must be considered when determining the selling price.

Example:
New Bakery Bagels bakes 60 dozen bagels at a cost of $6.48 per dozen. Generally an average of 5% of the
bagels remain unsold at the end of the day and are donated to a homeless shelter. If a markup of 50% on selling
price is needed, find the selling price per dozen. Find the total costs of the bagels.

Cost = 60 dozen × $6.48 = $388.80

Find the selling price, markup is 50%

50% C $388.80
50% M $?
100% S $?
Part $388.80
Base = = = $777.60
Rate .5
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The total selling price is $777.60.

Find the number of dozen bagels that will be sold. Since 5% will not be sold, 95% will be sold.
95% × 60 dozen = 57 dozen bagels sold

The selling price of $777.60 must be received from the sale of 57 dozen bagels.

Find the selling price per dozen bagels by dividing the total selling price by the number of bagels sold.
$777.60
= $13.64 selling price per dozen
57
A selling price of $13.64 per dozen gives the desired markup of 50% on selling price while allowing for 5% of the
bagels to be unsold.

MARKDOWN

When merchandise does not sell, the price is often reduced. Difference between the original selling price and
the reduced selling price is called the markdown. Selling price after markdown is called the reduced price, sale
price, or actual selling price.

Reduced price = Original price – Markdown

Example:
Dick’s Sporting Goods has reduced, or marked down, the price of a home gym. Find the reduced price if the
original price was $2879 and the markdown is 30%.

The markdown is 30% of $2879,

or .3 × $2879 = $863.70.

Find the reduced price as follows.

$2879.00
− 863.70
$2015.30
The reduced price is $2015.30

Example:
The total inventory of coffee mugs at a gift shop has a retail value of $785. If the mugs were sold at reduced
prices that totaled $530, what is the percent of markdown on the original price?
First find the amount of the markdown

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 $785
−$530
$255
Use the rate formula
Part 255
Rate = = = .3248 = 32.5%
Base 785
The mugs were sold at a markdown of 32.5%.

Example:
Target offers a child’s car seat at a reduced price of $63 after a 25% markdown from the original price. Find the
original price.

After the 25% markdown, the reduced price of $63 represents 75% of the original price. The original price, or base,
must be found.
Part 63
Base = = = $84
Rate .75
The original price of the car seat was $84.

Break-Even, Profit & Loss

The break-even point is the selling price that just covers the cost of the item plus overhead, which includes rent,
utilities, marketing, accounting, etc. A company does not make or lose money on items sold at the break-even
point.

A reduced net profit occurs when an item is marked down from the original price but is still sold above the break-
even point.

An operating loss occurs when the selling price of an item is below the break-even point but above the cost of
the item.

An absolute loss, or gross loss, occurs if the selling price is less than the actual cost paid for the item. For example,
a firm that buys a pair of slacks for $38 and then sells the slacks for $25 has an absolute loss, which is the difference
between the two, or $13.

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Formulas:
Break-even point = Cost + Operating expenses
Operating loss = Break-even point − Reduced selling price
Absolute loss = Cost − Reduced selling price

Example:
Appliance Giant paid $1600 for a 75-inch LCD flat-panel HDTV. If operating expenses are 30% of cost and the
television is sold for $2000, find the amount of profit or loss.

Operating expenses are 30% of cost.

Operating expenses = 0.30 × $1600 = $480
The break-even point for the LCD HDTV is
Cost + Operating expenses = Break-even point
$1600 + (0.3 × $1600) = $1600 + $480
= $2080 break-even point

So, the company makes a profit if the television is sold for more than the $2080 break-even point or incurs a loss
if sold for less. Since the selling price is $2000, there is a loss, found as follows.

$2080 – $2000 = $80

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The $80 loss is an operating loss since the selling price is less than the break-even point but greater than the cost.

Example:
A ping pong table that normally sells for $360 at Dick’s Sporting Goods is marked down 30%. If the cost of the
game table is $260 and the operating expenses are 20% of the cost, find:
a. the operating loss
b. the absolute loss.

Solution:
a. Break-even point
= Cost + Operating expenses

= $260 + 20% of $260

= $312
Reduced price = $360 – (0.3 × $360)
= $360 – $108 = $252

Operating loss = $312 – $252

= $60

b. The absolute or gross loss is the difference between the cost and the reduced price.

$260 cost – $252 reduced price = $8 absolute loss

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