Pricing
Mark-up and Mark-down
Profit Margin
Series Discount
Mark-up
Mark-up based on cost
An auto mechanic charges a 40% markup based on cost for parts. What would the price be for an air filter that
cost him $14.95? What is the dollar amount of his markup on this item?
Since the markup is 40%, we multiply the cost by 1.40:
P = C(1+r)
P =$14.95(1.40)
P =$20.93
Mark-down
Contoh
1. At its Presidents’ Day Sale, a furniture store is offering 15% off
everything in the store. What would the sale price be for a sofa that
normally sells for $1,279.95? What is the dollar amount of the markdown?
Since the markdown is 15%, we multiply the original price by 0.85:
MP= OP(1- d)
MP= $1,279.95(0.85)
MP= $1,087.96
At the end of the summer, a backyard play set that usually sells for $599.95 is marked down to $450.
What is the markdown percent?
Working from the formula, we get:
MP = OP(1 — d)
$450 = $599.95(1 — d)
Dividing both sides by $599.95 gives:
0.7500625 = 1 — d
Since the d is subtracted on the right side, while we want a positive d, we add d to both sides
to get:
0.7500625 + d = 1
Then we subtract 0.7500625 from both sides and rewrite d as a percent to get:
d = 0.2499374
= 24.99%
An alternative approach to the solution is the following. The markdown
is $599.95 — $450 =
$149.95. As a percent of the original price this is $149.95/$599.95
= 0.2499374 =
24.99%.
Comparing Markup Based on Cost with
Markdown
Gemma’s Gemstone Jewelry bought a necklace for $375. In the
store, Gemma marked up this price by 20%. Several months later, when
the necklace still had not sold, she decided to mark down the price by
20%. What was the marked-
down price?
Markup:
P = C(1 + r)
P = $375(1.20)
P = $450.00
Markdown:
MP = OP(1 — d)
MP = $450(0.80)
MP = $360.00
The marked-down price was $360, not $375!
Why?
If prices are calculated with a 35% markup based on cost, what is the percent
that those prices should be marked down to get back to their original cost?
P = C(1 + r)
P = $100(1.35)
P = $135.00
MP = OP(1 — d)
$100.00 = $135.00(1 — d)
0.7407407 = 1 — d
d = 25.93%
Gross Profit Margin
The profit margin is the profit expressed as a percent of the selling
price. This can also be simply called the margin; the word profit is
sometimes omitted.
The gross (profit) margin is based on the gross profit and the net
(profit) margin is based on the net profit.
Sally’s Fashion Paradise sells a dress that cost $45 for
$65. Find the gross profit margin from this sale.
The gross profit from the sale of the dress is $65 — $45
= $20. Since gross profit margin is a percent of the
selling price, the gross profit margin from this sale is
$20/$65 = 0.3077 = 30.77%
Sally’s Fashion Paradise sells women’s purses, pricing them with a 35%
gross profit margin. If a purse is priced at $72, what is the gross profit in
that price?
The gross profit is (35%)($72) = $25.20. The question did not ask for it,
but we can also find
that the purse’s cost is $72.00 - $25.20 = $46.80
Two years ago, Sally’s shop had sales totaling $153,670. The cost
of the goods sold was $118,945, and her expenses totaled $57,950.
Find her overall
(a) gross profit margin and (b) net profit margin for that year.
Gross profit = $153,670 - $118,945 = $34,725.
Then $34,725/$153,670 = 22.60%; that is the gross profit margin
First approach: As a percent of sales, the expenses were $57,950/$153,670 =
37.71%.
22.60% — 37.71% = —15.11%
Alternative approach: Net profits were $34,725 — $57,950 = —$23,225.
—$23,225/$153,670 = —15.11%
Series discounts
Series discounts are multiple discounts applied to a price in succession.
Sometimes, a manufacturer may offer multiple trade discounts. For
example, a company might normally offer a 25% trade discount, but,
during a special promotion or to match a competitor’s pricing, might
offer an additional 15% discount.
The list price for a herbal weight loss supplement is $39.95. The
manufacturer normally offers a 25% trade discount, but during a special
promotion it offers an additional 15% discount. Find the net price for
this item.
The first, 25% discount, reduces the price to
(75%)($39.95) = $29.96.
The second discount further reduces the price to
(85%)($29.96) = $25.47.
This could also be calculated more simply as
(75%)(85%)($39.95) = $25.47
The single discount equivalent to a series of discounts is referred to as the
single equivalent discount.
Find the single equivalent discount for successive 25% and 15%
discounts.
For convenience, we will work from an assumed price of $100. These discounts
would reduce
that price to (75%)(85%)($100) = $63.75. This is a total discount of
$100 -$63.75 = $36.25.
As a percent of the list price, this works out to $36.25/$100 = 36.25%.
