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CHAPTER 8
SUMMARY
Topic Key Ideas, Formulas and Techniques Example(s)
Markup Based on Cost,
p. 333- Markup based on cost formula: P C(1 r)
Markup amount is the difference between retail
price and cost.
An auto mechanic charges
40% markup based on cost
for parts. Determine the retail
price and amount of markup
for an air fi lter that cost
$14.95.
(Example 8.1.1)Determining Markup Percent,
p. 334- Use the markup based on cost formula and solve
for r. - Or calculate the markup amount and divide by
the cost.
An electronics retailer offers a
computer for sale for $1,000.
The cost is $700. Determine
the markup percent.
(Example 8.1.3)Markdown, p. 334 • Markdown formula: MP OP(1 d).- Markdown amount is difference between original
and marked-down price.
A furniture store offers a
15%-off sale. A sofa normally
sells for $1,279.95. What is
the sale price?
(Example 8.1.4)Markup versus Markdown,
p. 336- Despite appearances, if a price is marked up by
a certain percent and then marked down by the
same percent, the result is not the original cost. - To determine the markdown to get back to
cost, calculate the percent markdown, using
the cost and retail prices. - If price is unknown, use any amount for the cost
(such as $100).
If prices are calculated with
a 35% markup based on
cost, what is the percentage
that those prices should be
marked down to get back to
original cost?
(Example 8.1.8)Gross Profi t Margin, p. 343 • Gross profi t is the difference between cost and
selling price.- Gross profi t margin is gross profi t as a percent of
selling price.
Last year, sales at Sally’s
Fashion Paradise totaled
$219,540. The cost of the
items sold was $147,470.
What was the business’s
gross profi t margin?
(Example 8.2.3)Net Profi t Margin, p. 344 • Net profi t is the profi t left after expenses are
subtracted from gross profi t.- Net profi t margin is net profi t as a percent of
selling price.
Last year, Sally’s Fashion
Paradise had overhead
expenses totaling $63,073.
Find the net profi t margin.
(Example 8.2.4)Proportionate Allocation of
Expenses, p. 345- The net profi t margin for an individual item is
diffi cult to determine since expenses cannot
usually be directly attributed to each item. - Proportionate allocation applies the business’s
overall expense percent to each item.
A dress sold for $65. The
business’s overall sales
were $219,540 and overall
expenses were $63,073.
Using proportionate
allocation, fi nd how much
expense is attributable to this
dress.
(Example 8.2.6)Markup Based on Selling
Price, p. 345- Markup based on selling price formula:
C SP(1 r).
Determine the selling price of
an item costing $45 in order
to have a 35% gross margin.
(Example 8.2.7)(Continued)