TAGBILARAN CITY COLLEGE

College of Business and Industry

Tagbilaran City, Bohol

Course Code ABM102 Instructor Abegail P. Galigao, LPT

Course Title Business Email agaligao.tcc@gmail.com
Mathematics
Course Credits 3 Contact Number (0909) 332 0257
Course Bridging Course Consultation
Classification Hours
Pre-Requisite(s) Consultation Faculty Room
Venue

Learning Module 4 : Buying and Selling

(Mark-Up, Markdown and Gross Margin, Trade and
Cash Discounts, Profit or Loss)
Duration of Delivery : Oct. 5 – 9, 2020
Due Date of Deliverables : Oct. 9, 2020

Intended Learning Outcomes:

 Define markup and markdown
 Differentiate gross margin from markup, and profit from loss
 Compute for markup, markdown, gross margin, discounts, profit and loss
 Determine the break-even point in a certain situation/ problem
 Answer problems related to buying and selling using the various concepts presented

Introduction
It is always our desire to avail of having products sold at discounted prices. Malls, markets,
groceries, and the like are always full of customers whenever there is anniversary, summer or
midnight sales. Some of the buyers take this opportunity to buy items low prices and sold them to
friends or officemates with little profit to at least augment their day to day expenses. Many of us,
specially students, are doing buying and selling products in order to support personal expenses
at school. Mothers on the other hand do patronize these sales to increase their savings or be able
to buy additional items for the family to enjoy.
This module deals with the key concepts on buying and selling including analyzing and solving
problems relative to merchandising.

Concept Notes

Markon/ Markup, Markdown, and Gross Margin

Cost/ Original price – price by which an item was bought
Selling Price – amount an item is bought after markup/ markdown
Mark-up – amount added to the original price to obtain the new selling price
Mark-up Rate – ratio of the markup to the original price
Markdown – amount of reduction in the selling price
Markdown Rate – ratio of markdown to the original Price
Gross Margin – amount of sales minus the cost of goods sold
Gross Margin Rate – ratio of the gross margin to the selling price
 Formula for Markup and Markup rate
𝑀𝑢 = 𝑆 − 𝑀𝑜
𝑀𝑢
r= 𝑀𝑜
𝑥 100%
where S = selling price and 𝑀𝑜 is the original price

Example 1: Find the markup and the markup rate of a washing machine that costs Php6,700.00
and sells at Php10,500.00
Solution: C = Php6,700.00
SP = Php10,500.00
a. Mark-on
𝑀𝑢 = 𝑆 − 𝑀𝑜
= 10 500 – 6 700
𝑴𝒖 = Php 3 800
b. Mark-on rate
𝑀
r = 𝑀𝑢 𝑥 100%
𝑜
3800
= 𝑥 100%
6700
= 0.5672
r = 56.72%

Example 2: How much should a man price his item if it cost him Php3,000 and he wishes to have
a markup of Php200?
Solution: C = Php 3 000
Mu = Php 200

𝑀𝑢 = 𝑆 − 𝑀𝑜
200 = 𝑆 − 3000
S = 200 + 3000
S = Php 3 200

Formula for Markdown and Markdown rate

𝑀𝑑 = 𝑀𝑜 − 𝑆
𝑀𝑑
r= 𝑥 100%
𝑀𝑜
where S = selling price and 𝑀𝑜 is the original price

Example 3: An item that was originally priced at Php450 is now offered for sale at Php160 only.
Find the markdown and markdown rate.
Solution: 𝑀𝑜 = Php 450
S = Php 160
a. Markdown
𝑀𝑑 = 𝑀𝑜 − 𝑆
= 450 – 160
𝑀𝑑 = 𝑃ℎ𝑝 290
b. Markdown rate
𝑀𝑑
r= 𝑀𝑜
𝑥 100%
290
= 𝑥 100%
450
= 0.6444
r = 64.44%

Example 4: A dress tagged at Php 780 is given a markdown rate of 15%. What is the new
price of the dress?
 Solution: 𝑀𝑜 = Php 780
r = 15%

𝑑 𝑀
15% = 780 𝑥 100%
15% 𝑀 𝑑
100%
= 780
𝑀𝑑
0.15 =
780
0.15(780) = 𝑀𝑑
𝑀𝑑 = 𝑃ℎ𝑝 117

𝑀𝑑 = 𝑀𝑜 − 𝑆
117 = 780 − 𝑆
S = 780 – 117
S = Php 663

Formula for Gross Margin and Gross Margin rate

𝑀𝑔 = 𝑆 − 𝑀𝑜
𝑀𝑔
r= 𝑥 100%
𝑆
where S = selling price and 𝑀𝑜 is the original price

Example 5: Amlong spent Php 2 400 000 to construct a house. He then sold the house at
Php 3 000 000. How much was the gross margin? What was the gross margin rate?
Solution: 𝑀𝑜 = 𝑃ℎ𝑝 2 400 000
S = Php 3 000 000

a. Gross Margin
𝑀𝑔 = 𝑆 − 𝑀𝑜
= 3 000 000 – 2 400 000
𝑀𝑔 = Php 600 000
b. Gross margin rate
𝑀𝑔
r= 𝑆
𝑥 100%
600 000
r = 3 000 000 𝑥 100%
= 0.20
r = 20%

Trade and Cash Discounts

Discount – reduction from the list price given to customers/buyers at the discretion of the
Seller
Single trade discount – one-time discount given to a customer when buying a product
Discount series – multiple discounts are applied successively on the same time

Formulas in Calculating the Discount and the Selling Price

D = r ∙ 𝑴𝒐 where D = discount, r = discount rate, 𝑀𝑜 = original price
S = 𝑴𝒐 − 𝑫 where S = selling price, 𝑀𝑜 = original price, D = discount
Example 6: A DVS, which originally costs Php 600, is marked 25% off. How much is the
discount? What is its selling price?
Solution: 𝑀𝑜 = 600
r = 25% = 0.25

a. Discount
D = r ∙ 𝑀𝑜
= 0.25 (600)
D = Php 150
b. Selling price
S = 𝑀𝑜 − 𝐷
= 600 – 150
S = Php 450

Example 7: A store offers a discount series of 20/15/5 (this implies 20%, 15%, 5%) for any orders
above Php 9 000. Suppose you order 40 raincoats with a marked price Php 300 each.
Find the following:
a. Total discounted price of the order
b. The total discount

Solution:
a. Total price of raincoats = 40 (300) = 12 000
Since the total order exceeds 9 000 pesos, the 20/15/5 discount can be
applied.
Let 𝑆1 be the first discounted price, r = 20%, and 𝑀0 = 𝑃ℎ𝑝 12 000
𝑆1 = 𝑀0 (1 − 𝑟1 )
= 12 000 (1 – 0.20)
= 12 000(0.80)
𝑆1 = Php 9 600

Let 𝑆2 be the second discounted price, r = 15%, and 𝑆1 = 𝑃ℎ𝑝 9 600

𝑆2 = 𝑆1 (1 − 𝑟2 )
= 9 600 (1 – 0.15)
= 9 600(0.85)
𝑆2 = Php 8 160

Let 𝑆3 be the final discounted price, r = 5%, and 𝑆2 = 𝑃ℎ𝑝 8 160

𝑆3 = 𝑆2 (1 − 𝑟3 )
= 8 160 (1 – 0.05)
= 8 160 (0.95)
𝑆3 = Php 7 752
𝑇ℎ𝑢𝑠, 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑 𝑝𝑟𝑖𝑐𝑒 𝑓𝑜𝑟 40 𝑟𝑎𝑖𝑛𝑐𝑜𝑎𝑡𝑠 𝑖𝑠 𝑷𝒉𝒑 𝟕 𝟕𝟓𝟐.

b. Total discount
12 000 – 7 752 = Php 4 248

Profit of Loss

Profit – amount left of the selling price after removing all the expenses and cost
Cost – amount of purchase of a product sold
Loss – happens when the amount of cost and other services exceeded the amount of sales
Revenue – another term for income
Operating expenses – includes all other expenses incurred un running the business
Gross profit – another term for gross margin
 Operating Profit/loss – gross profit deducted by the operating expenses
Net profit/ loss – operating profit including other income deducted by other expenses
Break-even Point – point when the total cost of expenses and the total revenues are equal,
meaning there is no profit or loss

Formula in Getting the Profit

The profit P is calculated by subtracting the total expenses E from the total
revenue R. In symbols,
P=R–E

Example 8: Determining the Profit

Amlong made 100 pieces of doughnuts and sold them at 6 pesos each. It costs
him 4 pesos to make once piece of doughnut. If all doughnuts will be sold, how much will
be his profit?
Solution:
E = 4 (100) = 400

R = 6 (100) = 600

P=R–E
= 600 – 400
P = Php 200

Example 9: Determining the Loss

On a certain day, Bareg made 100 pieces of pancake to sell. It costs him Php4.50
to make one piece of pancake. He was able to sell 72 pieces at Php 6 each. How much
was his loss?
Solution:
E = 4.50 (100) = 450

R = 6 (72) = 432

P=R–E
= 432 – 450
P = -18
Therefore, Bareg’s loss is Php 18.

Example 10: Determining the Break-even Point

It costs Jessie Php 4 to make a donut. She made 100 pieces and he plans to sell
them at Php 5 each. How many pieces must she be able to sell in order to reach the
breakeven point?
Solution:
E = 4 (100) = 400

R = 5x where x is the number of doughnuts needed to be sold

R=E
5x = 400
5𝑥 = 400
5
x = 80
This means that Jessie needs to sell 80 pieces of doughnuts to reach the
break-even point.
Reference:
Bacani, J.., Soriano, J. Business Mathematics. C & E Publishing, Inc. 2017