The Mathematics of Money

332

Mathematics

of Pricing

“This planet has—or rather had—a problem,

which was this: most of the people living

on it were unhappy for pretty much of the

time. Many solutions were suggested for

this problem, but most of these were largely

concerned with the movements of small

green pieces of paper, which is odd because

on the whole it wasn’t the small green

pieces of paper that were unhappy.”

—Douglas Adams, “So Long and Thanks for all the Fish”

Learning Objectives

LO 1 Determine retail prices by using markup from cost,

markdown, and markup based on selling price.

LO 2 Calculate the percent markup or markdown

based on cost and selling prices.

LO 3 Determine and interpret gross and net profi t

margins.

LO 4 Calculate invoice costs based on list price and

trade discount.

LO 5 Understand the terminology surrounding cash

discounts and be able to calculate them.

LO 6 Calculate the single discount percent equivalent

to a series of discount percents.

LO 7 Distinguish between percent, straight-line, and

MACRS depreciation and calculate depreciation

rates and amounts, using these methods.

Chapter Outline

8.1 Markup and Markdown

8.2 Profi t Margin

8.3 Series and Trade Discounts

8.4 Depreciation

CHAPTER

8

8.1 Markup and Markdown

A very large part of the business conducted in this world is a matter of buying things and then

turning around and selling them to someone else at a profit. When we are setting prices, or when

we are determining how successful those prices will be in meeting a business’s profit goals,

mathematics necessarily must be involved. In this section we will take a look at some of the

most commonly used mathematical measurements and tools used to set and evaluate prices.