Chapter 2: Establishing Retail

Prices
MARKUP BASED ON COST

MARK-UP BASED ON SELLING PRICE

MARKDOWNS

SERIES OF MARKUPS AND MARKDOWNS

PRICING PERISHABLE ITEMS

LEARNING OBJECTIVES:
1. Define and explain the term cost, markup, markdown, and selling price;
2. Calculate markup, markup rate based on cost, and markup rate based on
selling price;
3. Calculate selling price when:
Cost and markup are known;
Cost and markup rate based on cost are known;
Cost and markup rate based on selling price are known;
4. Calculate cost when:
Selling price and markup are known;
Selling price and markup based on selling price are known;
Selling price and markup based on cost are known;
LEARNING OBJECTIVES:

5. Convert markup based on cost to markup based on

selling price;
6. Convert markup based on selling price to markup based
on cost;
7. Calculate markdown, markdown rate, and reduced
selling price; and
8. Determine the selling price of perishable items.
DEFINITION OF TERMS:
Selling Price – the amount a business firm charges customers
for merchandise
- the amount the customer will pay for the
merchandise
Cost – the amount a business pays for merchandise
Markup – the amount a seller adds to the cost of merchandise
to arrive at the selling price; amount added enough
to:
(1) cover the cost of the good (the amount the
retailer paid for the good);
(2) cover operating expenses such as utilities,
salaries, rent, and supplies; and
(3) provide for a reasonable profit
Markup percent – the rate used to determine the amount that
will be added to the cost of merchandise. It can be based on
either cost or the selling price

Perishables – merchandise that must be sold rapidly before it

spoils and becomes unsalable.
FORMULA:

Selling Price SP
- Cost - C
------------------------ ----------
Markup MU
========== =====
EXERCISES:
1. A case of softdrinks is bought by STF Mini Mart from a
wholesaler for P320.00. It will be sold for P530. Find the
markup.

2. Find the mark-up if :

(a) cost is P55,560.00 and selling price is P61,035.75
(b) cost is P6,000 and selling price is P6,840
(c) cost is P427.00 and selling price is P595.15
CALCULATING THE MARKUP PERCENT:

A. Markup Percent based on Cost

Markup % based on cost= markup
cost

B. Markup Percent based on Selling Price

Markup % based on SP = markup
selling price

** Convert your answer in # 1 (previous slide) to

a.) markup % based on cost
b.) markup % based on selling price
CALCULATING THE MARKUP PERCENT:

** Convert your answer in # 1 to:

a.) markup % based on cost
b.) markup % based on selling price

1. A case of paper is bought by Ace Office Supply from a

wholesaler for PhP500. It will be sold for PhP640.00. Find
the markup.
Sol.: SP P640.00
-C P500.00
------- ----------------
MU P140.00
1. A case of paper is bought by Ace Office Supply from a
wholesaler for PhP500. It will be sold for PhP640.00. Find
the markup.
Sol.: SP P640.00
-C P500.00
------- ----------------
MU P140.00

Markup % based on cost= markup P140.00

cost P500.00
= 28%
Markup % based on SP = markup P140.00
selling price P640.00
= 21.875%
CONVERSION OF PERCENTAGE:
A. Convert markup % on the SP to a markup % on Cost

Markup % on cost = markup % on SP

-----------------------------------------
100% - markup % on SP

B. Convert markup % on Cost to a markup % on the Selling

Price
Markup % on SP = markup % on cost
-----------------------------------------
100% + markup % on cost
1. Convert a 20% markup on the selling price to a markup % on cost.
Markup % on cost = markup % on SP
------------------------------------
100% - markup % on SP
= 20%
100%-20%
= 25%

2. Convert a 25% markup on cost to a markup % on the SP.

Markup % on SP = markup % on cost
-----------------------------------------
100% + markup % on cost

= 25%
100%+25%
= 20%
SEATWORK:
1. A clothing store buys men’s suits for P5,000 and sells them for
P7,500.
a. How much is the markup on each suit?
b. What is the markup percent based on SP?
c. What is the markup percent based on cost?

2. A computer is purchased by Octagon for P30,000 from its

supplier. It will be sold for P33,000.
a. How much is the markup?
b. What is the markup percent based on cost?
c. Convert the mark-up percent on cost to the markup percent on
the selling price?
3. ABC Furniture ordered a sofa from a manufacturer and paid
P9,800. ABC Furniture will mark it up and sell it for P12,740.
a. How much is the markup?
b. What is the markup percent based on the selling price?
c. Convert the mark-up percent on the selling price to the
markup percent on cost?

4. Cang’s Inc. sells air-conditioning units for P 48,000 each unit.

If the cost of each unit was P35,000, determine the
following:
a. Markup
b. Markup ratio based on cost
c. Markup ratio based on selling price
5. Convert 15% markup based on selling price to markup %
based on cost.

6. Convert 40% markup based on cost to markup % based

on selling price.
SEATWORK:
1. A clothing store buys men’s suits for P5,000 and sells them for
P7,500.
a. How much is the markup on each suit? P2,500
b. What is the markup percent based on SP? 33.33%
c. What is the markup percent based on cost? 50%

2. A computer is purchased by Octagon for P30,000 from its

supplier. It will be sold for P33,000.
a. How much is the markup? P3,000
b. What is the markup percent based on cost? 10%
c. Convert the mark-up percent on cost to the markup percent on
the selling price? 9.09%
3. ABC Furniture ordered a sofa from a manufacturer and paid
P9,800. ABC Furniture will mark it up and sell it for P12,740.
a. How much is the markup? P2,940.00
b. What is the markup percent based on the selling price? 23.08%
c. Convert the mark-up percent on the selling price to the
markup percent on cost? 30%

4. Cang’s Inc. sells air-conditioning units for P 48,000 each unit.

If the cost of each unit was P35,000, determine the
following:
a. Markup = P13,000
b. Markup ratio based on cost = 37.14%
c. Markup ratio based on selling price = 27.08%
5. Convert 15% markup based on selling price to markup %
based on cost.
15% = 17.65%
85%

6. Convert 40% markup based on cost to markup % based

on selling price.
40% = 28.57%
140%
FINDING THE UNKNOWNS IN RETAILING WHEN THE BASE IS
COST

A. Find the SP when the cost and the markup percent on cost
are known
SP = cost x (100% + markup % on cost)
Exercise:
A stool was bought for P200. A retailer’s markup percent is
60% on cost. Find the SP?
SP = P200 x 160% or SP 160%
SP = P320 - 200 100%
===== 60%
100%SP = 200 (160%)
SP = P320
B. Find the cost when the selling price and the markup percent on
cost are known
Cost = selling price
100% + markup % on cost
Exercises:
1. A retailer has a markup % of 55% on cost. A lamp has a selling
price of P400. Find the cost.
Cost = P400 400 155%
155% - Cost 100%
Cost = P258.06 55%
155% cost = 400(100%)
155% 155%
cost = P258.06
2. Find the cost for a motorcycle that retails P45,000 when it has
been marked up 100% on cost.
Cost = P45,000 / 2
Cost = P22,500
FINDING THE UNKNOWNS IN RETAILING WHEN THE
BASE IS THE SELLING PRICE

A. Finding the SP when the cost is known and the markup %

on the SELLING PRICE is also known
SP = cost
100% - markup %
Exercise:
Find the selling price for a suitcase that cost the retailer
P8,000 and is markup 20% on the selling price.
Answer: P10,000
B. Finding the cost when the SP and the markup percent on
the selling price are known.
Cost = selling price (100% - markup percent)

Exercise:

Find the cost to a retailer for a hat that sells for P350 and
markup of 25 percent based on the selling price.
 ASSIGNMENT:
1. Calculate the selling price for a suit costing the retail clothing store
P1,800 if the markup percent is 70% on cost.

2. Find the selling price for a dozen of eggs that cost a grocery store P80 if
the markup % is 25% on cost.

3. Find the cost for a toy that retails for P600 when it has been marked up
88% on cost.

4. Ace Hardware marks hand tools up 100% on cost. A power drill sells for
P2,500. What is Ace Hardware’s cost?

5. Find the selling price of a model car that cost the dealer P900,000 and
will carry a 40% markup on the selling price.
 ASSIGNMENT:
1. Calculate the selling price for a suit costing the retail clothing store P1,800
if the markup percent is 70% on cost.
SP = P1,800 x 170%
= P3,060
2. Find the selling price for a dozen of eggs that cost a grocery store P80/P.50
if the markup % is 25% on cost.

SP = P80 x 125% SP = P.50 x 125%

= P100 = P0.625

3. Find the cost for a toy that retails for P600 when it has been marked up 88%
on cost.
Cost = P600/188%
= P319.15
 ASSIGNMENT:
4. Ace Hardware marks hand tools up 100% on cost. A power drill sells for
P2,500. What is Ace Hardware’s cost?
Cost = P2,500 / 200%
= P1,250

5. Find the selling price of a model car that cost the dealer P900,000 and
will carry a 40% markup on the selling price.

SP = P900,000/60%
= P1,500,000
FILL-IN THE MISSING FIGURES:

Selling Price Cost Markup Markup (%) MU Based on

1,000 ? ? 30% Selling Price

? 70,000 20,000 ? Selling Price

? 50,000 ? 40% Cost

12,000 8,000 ? ? Selling Price

300,000 ? ? 25% Cost

FILL-IN THE MISSING FIGURES:

Selling Price Cost Markups Markup (%) MU Based on

1,000 700 300 30% Selling Price

90,000 70,000 20,000 22.22% Selling Price

70,000 50,000 20,000 40% Cost

12,000 8,000 4,000 33.33% Selling Price

300,000 240,000 60,000 25% Cost

MARKDOWNS AND PRICING PERISHABLE ITEMS

Markdown

Markdowns are reductions

from the original selling
price caused by seasonal
changes, old or dated
merchandise, competition,
special promotions and style
changes
Markdown = original SP – new SP

Markdown % = Markdown
Original SP

Series of markdowns, or markdowns then markup, then

markdowns, etc….
- should be based on the previous selling price
 EXERCISES:
1. A retailer has reduced the price of one item of merchandise in his store for
PhP15,000 to PhP10,000. Find the markdown percent.
2. A retailer has decided to mark women’s shoes down 30% from the original
selling price. A woman shoes originally sold for P5,000. Find its sales
price.
3. With summer approaching, Cangs, Inc. is putting its swimsuits on sale. One
suit originally sold for PhP4,200. It has been marked down 20%. Find the
sales price.
4. A retailer is finding the right price for its bicycle. The original price is
PhP40,000. He went through a series of price adjustments.
July 6 - marked it down 25%
July 15 - marked it down further 10%
July 24 - marked it up 15%
July 26 - marked it down 5%
Find the final price for the bicycle.
EXERCISES:
1. A retailer has reduced the price of one item of merchandise in his store for
PhP15,000 to PhP10,000. Find the markdown percent.
Markdown = Original SP – New SP
= P15,000 – P10,000 = P5,000
Markdown % = P5,000/P15,000 = 33.33%
2. A retailer has decided to mark women’s shoes down 30% from the original
selling price. A woman shoes originally sold for P5,000. Find its sales
price.
SP = P5,000 – (5,000 x 30%) or SP = P5,000 x 70%
= P3,500 P3,500

3. With summer approaching, SWIM Co.. is putting its swimsuits on sale. One
suit originally sold for PhP4,200. It has been marked down 20%. Find the
sales price.
SP = P4,200 – (4,200 x 20%)
= P3,360
 EXERCISES:
4. A retailer is finding the right price for its bicycle. The original price is
PhP40,000. He went through a series of price adjustments.
July 6 - marked it down 25%
July 15 - marked it down further 10%
July 24 - marked it up 15%
July 26 - marked it down 5%
Find the final price for the bicycle.

SP = P40,000 x 75% x 90% x 1.15% x .95

= P29,497.50
PRICING PERISHABLE ITEMS

SP of perishables = Total Sales

# of units produced - spoilage
Perishables – merchandise that must be sold rapidly
before it spoils and becomes unsalable (bakeries,
restaurants, fastfood, ice cream parlor

- against spoilage, breakage, employee theft, and

shoplifting
 PERISHABLES:
The Angelina Jolie Bread Shop bakes 60 dozen donuts each day. On average, 7.5% are
not sold and are given to a local charity. Ms. Jolie needs to have a 65% markup
percent on cost to cover costs and make a reasonable profit. The donuts costs
PhP4.00 per dozen to make. How much Ms. Jolie charge per donut.
Solution:
1. Total cost = 60 dozen x P4/doz. = P240
2. Total Sales = Total cost (100% +markup % on cost)
= P396
3. # of dozens expected to be sold:
60 doz. X 7.5% = 4.5 dozens not expected to be sold
60 doz. – 4.5 doz. = 55.5 dozens expected to be sold
4. Price per dozen = Total Sales P396 =
Dozens expected to be sold 55.5 doz.
= P7.14/doz.
5. Price per donut = Price per doz. = PhP0.60 per donut
12 pcs.
SEATWORK:
1. Violeta Catering Services prepares enough food to feed 1,500
people each day Sunday through Thursday, and 2,500 people
on Friday and Saturday. Past experience has shown that, on
average, (1) About 5% of the food will be left over and will not
be salable, and (2) PhP75.00 is the cost to produce each
meal.

A markup percent on cost of 70% is needed. What should be

the average price for a meal?
Violeta Catering Services prepares enough food to feed 1,500 people each day Sunday through
Thursday, and 2,500 people on Friday and Saturday. Past experience has shown that, on
average, (1) About 5% of the food will be left over and will not be salable, and (2) PhP75.00 is
the cost to produce each meal.
A markup percent on cost of 70% is needed. What should be the average price for a meal?
--------------------------------------------------------------------------------------------------------------------------------------------
Solution: Total meals served for the week: 1,500 x 5 days = 7,500 meals
2,500 x 2 days = 5,000 meals
12,500 meals
a. Total Cost = 12,500 meals x P75/meal = PhP937,500
b. Total Sales = SP SP 170%
Cost P937,500 100%
Markup 70%
= P937,500 x 170% = PhP1,593,750
c. Meals not salable = 12,500 meals x 5% = 625 meals
d. Meals sold = 12,500 meals – 625 meals not sold = 11,875 meals
e. Price per meal = PhP1,593,750 / 11,875 meals
= P134.21 per meal
SEATWORK:

2. Angie owns an ice cream parlor. She knows that 7% of the ice
cream she buys will be lost. Some will melt, some will be
dropped, and some will be given away for taste samples. She
paid PhP200.00 per gallon for 500 gallons. Aira Wu
repackages the ice cream into quart containers (four quarts in
a gallon). She needs 125% markup on cost. Calculate the
selling price for each quart.
2. Angie owns an ice cream parlor. She knows that 7% of the ice cream she buys will
be lost. Some will melt, some will be dropped, and some will be given away for
taste samples. She paid PhP200.00 per gallon for 500 gallons. Aira Wu
repackages the ice cream into quart containers (four quarts in a gallon). She
needs 125% markup on cost. Calculate the selling price for each quart.

a. Total Cost = 500 gallons x P200/gal. = PhP100,000

b. Total Sales = SP SP 225%

Cost P100,000 100%
Markup 125%
= P100,000 x 225% = PhP225,000

c. Lost ice cream= 500 gal. x 7% = 35 gal.

d. Ice cream sold = 500 gal. – 35 gal. = 465 gallons

or 1,860 quarts (465 gal. x 4 quarts)

e. Selling price per quart= PhP225,000 / 1,860 quarts

= P120.97/quart
END
•A mini-coffee maker bought by the Aroma Store for $77
will be sold at $136 to make a good profit. What is it
percent markup on cost?

a. $59 b. 44% c. 77% d. $77

•A cellphone retailer used a markup rate of 45% on

selling price. Find the selling price of the unit that cost
the retailer $30.

a. $84.55 b. $65.25 c. $54.55 d. $43.50

•The Speed, an auto shop, bought its car freshener at $10
and will sell it at $16 to gain its desired profit. What is it
percent markup on selling price?

a. 62.50% b. 60% c. 37.50% d. 137.50%

•A printshop pays its wholesaler $18 for a special kind of

ink and sell it for $32. What is the percent markup on
cost?

a. 56.25% b. 43.75% c. 43.21% d. 77.78%

•The Seahorse company bought a wetsuit at $110 and plans
to sell it at $210 in order to cover cost, operating expenses
and enjoy a profit. What is Seahorse's percent markup on
selling price?

a. 90.91% b. 22.68% c. 47.62% d. 52.38%

•Tipsy Store, a liquor outlet, uses 55% markup on cost.

Find the cost of a bottle of mexican tequila that sells at $63.
a. $43.45 b. $40.64 c. $97.65 d. $91.35
•A portable tattoo machine set with a price of $430 is
sold at Pierce and Color. A 45% markup on cost is
desired to make the company's desired profit . What
do the machine cost Pierce and Color?

a. $296.55 b. $277.42 c. $623.50 d. $575

•An item originally priced at $50 is marked 25% off.

What is the sale price?

a. $12.50 b. $40.00 c. $25 d. $37.50

•The original price of a book is $35. It was marked
down 12%. What is the markdown amount?

a. $30.80 b. $31.25 c. $4.20 d. $39.20

•An office supplies store marks down its special paper

by 15%. Its sale price is $32. What was the original
price?

a. $37.65 b. $27.82 c. $59.20 d. $36.80

 Markup based
Selling Price Cost Markup (P) Markup (%)
on

350,000 ? ? 20.00% Selling Price

? 35,000 ? 40.00% Cost

270,000 ? 90,000 ? Selling Price

? 130,000 70,000 ? Cost

? ? 40,000 40.00% Selling Price

 Markup based
Selling Price Cost Markup (P) Markup (%)
on

350,000 280,000 70,000 20.00% Selling Price

49,000 35,000 14,000 40.00% Cost

270,000 180,000 90,000 33.33% Selling Price

200,000 130,000 70,000 53.85% Cost

100,000 60,000 40,000 40.00% Selling Price

Fresh Fruit Stand realizes that not all its fruits will sell at full
price. It is expected that a percentage will get spoil and
some markdowns will be offered. With this in mind, Tomas,
the owner of the fruit stand will have to place a high markup
to cover these markdowns and spoilage and still enjoy a good
profit. Tomas bought 450 pounds of mangosteen at Php 25
per pound. He expects a spoilage of 10%. A markup of 60%
on cost is desirable to attain the profit he projects. How
much is the desired sale? What price per pound should
Tomas charge for the mangosteen? (show your complete
solution)
TOTAL COST = 450 X 25 = 11,250
TOTAL SALE = 11,250 X 1.6 =18,000
SPOILAGE = 450 X .1 = 45 IBS

SP = 18,000 / (450-45) = 44.44

The Go Green company bought a big garden canopy for Php 8,000 and sells it
with a markup of 60% on selling price. On March 1 the item was marked down
by 20%. To promote the product some more, an additional 10% markdown was
offered on March 30. After the promotional period, the canopy was marked up
7%. (show your solution)

Compute the price:

 Original selling price
 On March 1
 March 30
 After the promotional period
What is the markdown percent based on original selling price?
The Go Green company bought a big garden canopy for Php 8,000 and sells it
with a markup of 60% on selling price. On March 1 the item was marked down
by 20%. To promote the product some more, an additional 10% markdown was
offered on March 30. After the promotional period, the canopy was marked up
7%. (show your solution)
Compute the price:
 Original selling price 8,000 / .4 = 20,000
 On March 1 20,000 x .8 = 16,000
 March 30 16,000 x .9 = 14,400
 After the promotional period 14,400 x 1.07 = 15,408
What is the markdown percent based on original selling price?
20,000 -15,408 =4,592
4,592 / 20,000 = 22.96%