By the end of this chapter, student should

be able to:
 Explain retail price, cost price, mark-up
and markdown.
 Calculate the percentage of mark-up and
markdown.
 Compute gross profit, operating expenses,
net profit and breakeven price.
 An important principle in retail business
is the proper pricing of its merchandise. A
wrong decision on pricing may lead to
small profits or heavy losses.
 A retailer should be able to mark up his
goods to obtain a reasonable profit or
markdown his goods to clear old stock.
 The cost price is the original price of the goods paid by
the retailer.
 The retailer must add an additional amount called
mark-up to the cost of the goods to cover the business
expenses and to generate a profit.
 The sum of this cost and mark-up is the retail
(selling) price.
 Mark-up (gross profit or gross margin) is the difference
in the retail price and the cost that is
 R = C + M or M = R - C
where R = retail price
C = cost price
M = mark-up
 Mark-up is usually expressed as a
percentage.
 It can be expressed as
(a) mark-up per cent based on retail price
%Mr = (M/R) × 100%.
(b) mark-up per cent based on cost price
%Mc = (M/C) × 100%.
 The cost price of an antique table is RM5,000. What
is the retail price if the seller wants a 20% mark-up
based on (a) cost price, (b) retail price?

 Solution
(a) Let the retail price be RMx. Then
R = C + M
RM5,000 0.2(RM5,000)
Retail price = 5,000 + 0.2(5,000) = RM6,000
The retail price is RM6,000.
(b) Let the retail price be x. Then
R = C + M
x = 5,000 + 0.2x
0.8x = 5,000
x = 5,000 / 0.8 = RM6,250
 Mariam’s shop purchased 90 shirts at a cost of RM20 each. The
shop expects that 10% of the shirts will be sold at a reduced price of
RM15 each. If the shop is to maintain a 75% mark-up on cost on the
entire purchase, find the regular price of the shirts.

 Solution
Cost of the 90 shirts = 20 × 90 = RM1,800
The shop maintains a 75% mark-up on cost. Then,
R = C + M
RM1,800 0.75(RM1,800)
Sale of 90 shirts = 1,800 + 0.75(1,800) = RM3,150
Sale of 9 shirts (10% × 90 shirts) = 15 × 9 = RM135
Sale of other 81 shirts (90 – 9) = RM3,150 – RM135 = RM3,015
Regular selling price of a shirt = 3,015 ÷ 81 = RM37.22
 A retailer purchased 200 kg of cucumber at 50 cents per
kilogram. A 5% spoilage is expected. If he plans to make
a 40% mark-up based on overall cost, what is the selling
price of the cucumber?

 Solution
Total cost of cucumbers = 0.50 × 200 = RM100
Amount left after deducting spoilage = 200 – 5%(200) =
190 kg
The retailer wants a 40% mark-up on cost. Thus,
R = C + M
RM100 0.40(RM100)
 Selling price of 190 kg = 100 + 0.40(100) = RM140
Selling price of 1 kg = 140 ÷ 190 = RM0.74
 Mark-up per cent based on retail can be converted to mark-
up per cent based on cost and vice versa as follows.

 Mark-up per cent based on retail price

R=C+M
1 + %Mc = 100% + %Mc
%M Mark-up per cent based on retail price =
%M r = %Mc /(1 + %Mc)

 Mark-up per cent based on cost price

R = C + M
100% = (1 – %Mr) + %Mr
 Mark-up per cent based on cost price
%Mc = %Mr/(1 – %Mr)
 (a) The mark-up per cent based on cost price of an item is
20%.
What is its mark-up per cent based on retail price?
(b) The mark-up per cent based on retail price of an item is
15%. What is its mark-up per cent based on cost price?

 Solution
From %M r = %Mc /(1 + %Mc) we get
%M r = 20%/(1 + 20%)
= 16.67%
 From %Mc = %Mr/(1 – %Mr) we get
= 15%/(1 – 15%)
= 17.65%
 Markdown is a decrease in the selling price. It is the
difference between the old retail price and the new retail
price; that is,
MD = OP – NP
where MD = markdown
OP = old retail price
NP = new retail price

 Prices are sometimes marked down due to many reasons:

- to face stiff competition, to encourage purchases in bulk,
- to dispose off old, damaged or obsolete stocks and
- to close a line of merchandise.

 The markdown per cent, %MD, is based on old price OP and

is expressed as follows.
%MD = (MD/OP) × 100%
 The markdown per cent on a TV set is 10%. If the new
retail price is RM900, find the old retail price.

 Solution
Let the old price be RM K.
From %MD = (MD/OP) × 100%, we get
10%K= (K-900/K)
0.1K = K – 900
K – 0.1K = 900
K = RM1,000

The old selling price is RM1,000.

During a clearance sale, an appliance department marked down a
microwave oven by 12%, making the selling price RM400. At this
selling price, the department made a 30% mark-up on the selling
price. Find
(a) the regular price of the oven,

From NP = L(1 – r), we get

400 = L(1 – 12%)
L = RM454.55
Hence, the regular price of the oven is RM454.55.

(b) the cost of the oven,

When the appliance was sold for RM400, the department made
a 30% mark-up based on the selling price.
Let the cost be RM x.
Thus, R = C + M
400 = x + 0.30(400)
x = 400 – 0.30(400) = RM280
The cost of the appliance is RM280.
(c) the mark-up per cent of the oven at the regular
price.

Mark-up per cent at the regular price

= [(Regular price – Cost)/Regular price] × 100%
= [(454.55 – 280)/454.55] X 100%
= 38.4%
 A retailer wants to sell an item that costs RM200 at a price
less 15% discount that will give him a 28% mark-up based on
cost. Find
(a) the actual selling price, (b) the list price.

 Solution
(a) The retailer wants a 28% mark-up on cost. Thus,
R = C + M
RM200 0.28(RM200)
Actual selling price/NP = 200 + 0.28(200) = RM256

(b) Let the list price be L.

From NP = L(1 – r), we get
256 = L(1 – 0.15)
L = 256/0.85
= RM301.18
Hence, the list price is RM301.18.
 Not all businesses make money.
 A business incurs operating expenses (OE) such as rent,
lighting, wages, commissions, bonus and other
operating expenses.
 The mark-up must be able to cover the operating
expenses.
 If mark-up is greater than operating expenses, net
profit is achieved.
 However, if mark-up is less than operating expenses,
loss is incurred.
 Thus, if M > OE, net profit is obtained
 if M < OE, loss is incurred
where M = mark-up
OE = operating expenses
 If the retail price just covers the cost price and
the operating expenses, then it does not make
any profit nor incur any loss. This price is called
the breakeven price; that is,
Breakeven price = cost price + operating
expenses
 The mark-up equation, retail price = cost +
mark-up
To make some pan be expressed as:
Retail price = Cost + Net profit + Operating
expenses
or in abbreviation
R = C + NP + OE
A retailer bought a radio for RM200. Buying
expenses amounted to RM20. Operating expenses
incurred were 20% of the cost price. If the retailer
made a 25% net profit based on cost, find

(a) the retail price,

(b) the gross profit,
(c) the net profit,
(d) the breakeven price,
(e) the maximum markdown that could be offered
so that there is no profit or loss,
(f) the net profit or loss if the retail price was
RM280.
 Actual cost of the radio = RM200 + RM20 = RM220
From R = C + NP + OE
RM220 0.25(RM220) 0.20(RM220)
(a) Retail price = 220 + 0.25(220) + 0.20(220) = RM319
(b) Gross profit = NP + OE = 0.25(220) + 0.20(220) =
RM99
(c) Net profit = 0.25(220) = RM55
(d) Breakeven price = C + OE = 220 + 0.20(220) =
RM264
(e) Maximum reduction in price
= retail price – breakeven price = RM319 – RM264
= RM55
(f) Net profit = RM280 – RM264 = RM16
A dealer bought a hi-fi set for RM2,000
less 10% and 5%. He sold it at a discount
of 20%. If the gross profit earned by the
dealer is 20% on the net retail price, find
the list price of the hi-fi set.
Cost price of the hi-fi set = RM2,000 (1 – 10%)(1 – 5%) =
RM1,710
The dealer wanted a 20% mark-up on net retail price.
Let the net retail price be x. Thus,
net retail price = cost + mark-up
x RM1,710 0.2x
x = RM1,710 + 0.2x
0.8x = 1,710
x = RM2,137.50
Let the list price of the hi-fi set be L. From
NP = L(1 – r), we get
RM2,137.50 = L(1 – 0.2)
L = 2,137.50/0.8
= RM2,671.88
Hence, the list price is RM2,671.88.
1. Cost price is the amount paid for an item when it is
acquired.
2. Retail price is the amount received when the item is sold.
3. Mark-up is the difference between retail and cost prices.
4. List price is the price that is listed or displayed.
5. Markdown is the difference between the old retail price
and the new retail price.
6. Operating expenses are the expenses incurred in the
running of a
business like wages, rent and insurance.
7. Net profit is the amount left after deducting operating
expenses from
the mark-up.
8. Breakeven price is the retail price in which there is no
gain or loss.
9. R etail price = Cost price + mark-up