Sales and Markup

Worksheet: Metric 5 Mark-up & Margin

• 1) A computer software retailer uses a markup rate of 40%. If the retailer pays \$25 each for computer games sold in its stores, how much do the games sell for?

Answer: The markup is 40% of the \$25 cost, so the markup is: (0. 40) * (\$25) = \$10 Then the selling price, being the cost plus markup, is: \$25 + \$10 = \$35 Therefore the games sell for \$35.

• 2) A golf pro shop pays its wholesaler \$40 for a certain club, and then sells that club to golfers for \$75. What is the retail markup rate?

Answer: The gross profit in dollars is calculated as sales price less cost: \$75 – \$40 = \$35 The markup rate is then calculated: Markup (%) = Gross Profit / Cost *100 = \$35 / \$40 *100 = 87. 5%

• 3)A shoe store uses a 40% markup on cost. Find the cost of a pair of shoes that sells for \$63.

Answer: The cost of the shoes is calculated as follows: Selling Price = Cost + Markup (\$) = Cost + (Markup (%) * Cost) \$63 = Cost + (40% * Cost) \$63 = Cost + (0. 4 * Cost) \$63 = (1 + 0. 4) * Cost \$63 = 1. 4 * Cost Cost = \$63 / 1. 4 = \$45 )

• In 2009, Donna Manufacturing sold 100,000 widgets for \$5 each, with a cost of goods sold of \$2. What is the company’s margin %? Identify a way that Donna Manufacturing can increase its profit margin?

Answer: First we have to calculate the gross profit: Gross Profit = Selling Price – Cost of Goods Sold = \$5 – \$2 = \$3

Now we can calculate the margin: Margin (%) = Gross Profit / Sales * 100 = \$3 / \$5 * 100 = 60%

Ways to increase the profit margin:

• Decrease cost of material
• Decrease cost of manufacturing
• Increase sales price per unit
• Decrease COGS )

If a product costs \$100 and is sold with a 25% markup at a retail store, what would be the retailer’s margin on the product? What should be the markup and selling price if the retailer desires a 25% margin? Why might the retailer be seeking to increase their margin?

Answer: a) To calculate the margin, we first have to determine the sales price: Markup (\$) = Markup (%) * Cost = 25% * \$100 = \$25 Selling Price = Cost + Markup (\$) = \$100 + \$25 = \$125 Margin (%) = Markup / Price * 100 = \$25 / \$125 * 100 = 20%

Therefore the retailer’s margin would be 20% when the product is sold at a 25% markup. ) To calculate the markup and selling price at a 25% margin: Selling Price = Cost / (1 – Margin (%)) = \$100 / (1 – 25%) = \$100 / (1 – 0. 25) = \$133. 33 Markup (\$) = Selling Price – Cost = \$133. 33 – \$100 = \$33. 33 Markup (%) = Markup (\$) / Cost * 100 = \$33. 33 / \$100 * 100 = 33. 33%

Therefore to obtain 25% margins, the product would have to be sold at \$133. 33 with a markup of 33. 33%. c) Reasons for increase include: – Increase in fixed costs (rent, tax, commission, wages, etc. ) – Increase in demand and/or decrease in supply Other competitors/retailers charge more for the product and the higher margin is a result of increasing sales price to match

6) The following is a Distribution Chain for a Pair of designer Jeans: The manufacturer in China produces the Jeans for \$5. 00 a pair and sell them to the importer for \$7. 00. The importer sell them to the brand distributor for \$10. 00 a pair The Retail store buys them for \$50. 00 from the brand distributor. The Retail Store markups them up 150%.

What is the Retail Price? What is the Margin % and Markup % for each of the Channel partners in the Distribution Chain?

 Retail Price = \$125. 0 Mark-up % 40. 00% 42. 86% 400. 00% 150. 0% Margin % 28. 57% 30. 00% 80. 00% 60. 00% Selling Price \$ 5. 00 \$ 7. 0 \$ 10. 00 \$ 50. 00 \$ 125. 00 Channel Margin \$ 2. 00 \$ 3. 0 \$ 40. 00 \$ 75. 00 Channel Markup \$ 2. 00 \$ 3. 0 \$ 40. 00 \$ 75. 00

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