Important Terms

• Revenue – refers to the income earned after products or services are sold.
It reflects all the money earned from the sale before any deductions have
been made. It is usually the topline in income statement.
• Cost of goods sold (COGS) – refers to all the expenses that the business
incurs while making products and delivering services.
• Gross Profit – the part of the revenue that remains after the expenses of
manufacturing your products or delivering your products have been
deducted. Gross profit is the difference between revenue and COGS
 MARGIN
 It
is also referred to as gross margin, is a figure that shows the amount of revenue earned after
the COGS has been deducted.

Margin Formula:

Margin Rate Formula:

 MARGIN
Example:
Assume a pair of headphones is sold at 350 php and costs the company 150 php to make.
 MARK UP
 It
also analyzes the profit made after making a sale. However markup looks at gross profit as a
function of the cost of goods sold, rather than revenue.

Mark up Formula:

Mark up Rate Formula:

 MARK UP
Example:
It takes 150 php to produce a pair of headphones, which are then sold at a price of 350.
 MARGIN vs. MARK UP
Margin and markup are like two sides of a coin. They describe the same thing but they provide
different perspectives. The margin shows the relationship between gross profit and revenue,
while markup shows the relationship between profit and the cost of goods.
• Having markup on your products ensures that your business is making a profit with each
sale and provides a way to quantifying the profit.
• Markup is a great tool in the initial stages of a business since it helps you to better
understand how cash flows into and out of your business. This can be very useful in helping
you locate efficient points and bottlenecks within your business.
• Margin is a precise and reliable tool for calculating profits and provides a clear picture of
how sales are impacting your company’s bottom line.
 MARGIN vs. MARK UP
A merchandising store priced a large storage box at ₱650. If the cost is ₱580.
a. How much is the mark-up?
b. What is the rate of mark-up?
c. What is the rate of margin?
 MARGIN vs. MARK UP
The manufacturing cost of a teddy bear is ₱365. They want to earn a margin
of ₱90 on it. What is the rate of mark-up?
 MARGIN vs. MARK UP
Suppose you are asked to put up a business. You need to make a business plan for that.
Present your business plan CREATIVELY using PowerPoint.
1. What product do you want to sell?
2. What is your estimated cost for the product?
3. What is your desired selling price for the product?
4. How much margin do you want to earn?
5. What would be your mark-up rate for that?
6. What would be your margin rate for the product?
 Other Terms
• Cost of goods sold - the price of all inventory sold which includes both fixed
and variable costs.

• Fixed cost - It doesn’t change based on the production

Example: (rent, insurance, salaries if employees, payroll taxes and employee
benefits, property taxes)

• Variable expenses - are costs that can change based on how much you are
producing.
Example: (Materials used, shipping costs, direct labor, credit card fees, sales
staff commissions