# Sales and Markup

### Sales and Markup

Student Name: __________________________________________ID ___________ 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 | | | | | | | | | |Manufacturer | |Importer | |Distributor | |Retail | | | |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 | | | | | | | | | | | | |