Pricing

Cost

• This refers to the purchase price of an

article.
• If a trader bought an item for 100 pesos,
this is the cost as far as the trader is
concern.
Initial Markup

• Also known as mark-on

• This is the amount added to the cost to
arrive at the original Selling Price.

Cost....................................P100
Initial markup...................... 20
Original Selling Price..........P120
Additional Markup

• This refers to the amounts added to the

original selling price to arrive ar the new
selling price.

Original Selling Price............P120

Additional Markup................. 30
New Selling Price.................P150
Markup Cancellation

• This refers to the decrease in the new

selling price
• The reduced selling price should not be
below the original selling price.
New Selling Price..................P150
Markup Cancellation.............. (10)
Reduced Selling Price...........P140
Markup Cancellation.............. (20)
Original Selling Price.............P120
Markdown

• This refers to the reduction in the original

selling price
Original Selling Price..............P120
Markdown............................... (5)
New Reduced Selling Price....P115
Markdown............................... (5)
New Reduced Selling Price....P110
Markup vs. Margin

• Markup is based on cost

– This is the amount by which the cost of the
product is increased in order to derive the
selling price
• Margin is based on selling price
– This is computed as SALES - COGS
Markup

Markup Based on Cost

Cost..................P140............100%
Markup.............. 60.............42.86%
Selling Price......P200...........142.86%
Margin

Markup Based on Sales

Cost..................P140............70%
Markup.............. 60.............30%
Selling Price......P200...........100%
Markup Based on Cost

To get the corresponding percent for selling

price and the markup we use the cost as
the base
Selling Price as % of Cost= Selling Price
Cost
Markup as % of Cost = Markup
Cost
Selling Price.....................P?..........130%
Cost..................................(200)......(100%)
Markup.............................P?..........30%
Selling Price = Cost x Rate
Selling Price = 200 x 130% or 200 x 1.3
Selling Price = P260
HENCE,

Selling Price............P260...........130%
Cost......................... (200)..........100%
Markup.....................P60............ 30%
To prove that both selling price and markup
are correct
Selling Price = Cost + Markup
= Cost + (Cost x Markup rate based on cost)
= 200 +(200x 30%)
= 200 + 60
Selling Price = P260
Markup Based on Selling Price
(Margin)
To express the cost and the markup in
percent, the selling price is the base:
Cost as % of Selling Price = Cost
Selling Price
Markup as % of Selling Price = Markup
Selling Price
Selling Price.....................P?..........100%
Cost..................................(200)......(70%)
Markup.............................P?..........30%
Selling Price = Cost
Rate
Selling Price = 200 or 200
70% .70
Selling Price = P285.71
HENCE,

Selling Price............P285.71.........100%
Cost......................... (200)............(70%)
Markup.................... P 83.71.......... 30%
Converting Markup Based on Cost
to Markup Based on Selling Price
Cost Selling Price
Selling Price..........150%..........100%
Cost........................(100)..........?
Markup................... 50%..........?
MUsp= MUcost
SP rate
= 50%
150%
=1
3
= 33.33%
 Cost Selling Price
Selling Price....450....150%..........100%
Cost................(300)....(100)..........66.67%
Markup...........P150.... 50%..........33.33%
MUcos= MUsp
Cost rate
= 33.33%
66.67%
= 50%
Markdown

• Traders would sometimes reduce selling

price to get rid of slow-moving
merchandise or out of style inventories to
stimulate sales or meet the prices of
competitors.
Markdown = OldSP - NewSP
= P450 - 400
= P50
• The markdown rate is generally expressed
as a percent of the new reduced price;
hence, the new reduced price is the base
(100%)
Old Selling Price..........P450.......100%
New Selling Price.........(400).......(88.89%)
Markdown.....................P50.........11.11%
Markdown rate = Markdown
New Selling Price
= P50 = 1
P400 9
= .1111...
=11.11%
Old Selling Price..........P450.......100%
New Selling Price.........(400).......(88.89%)
Markdown.....................P50.........11.11%
 Item Cost Competitor Price

1 Christmas Decor 155 250

2 Notebooks 12 20
3 Candy Canes 70 75
4 Beach wear 450 800
5 Umbrella 550 700
6 Rain boots 350 500
7 Heart-shaped Chocolates in a box 225 300
8 Sunscreen bottle 300 325
9 Canned goods (expiring in a month) 35 40
10 Iphone X 69000 75000
 Selling Selling
Item MUCost Rate MUsp Rate Markdown
Price Price

1 Christmas Decor
2 Notebooks
3 Candy Canes
4 Beach wear
5 Umbrella
6 Rain boots
Heart-shaped
7
Chocolates in a box
8 Sunscreen bottle
Canned goods
9
(expiring in a month)
10 Iphone X
Profit or Loss
• Profit is what remains of the selling price
(sales) after all costs and expenses had
been deducted.
• Cost means the cost of the product or
service rendered
• Expenses refer to the operating
expenses(administrative and selling) and
financial expenses (interest and other
finance charges)
• Loss occurs when cost and expenses
exceed the selling price or sales.
• Gross sales refer to the total sales.
• Sales discounts and sales returns and
allowances are deducted from the gross
sales to arrive at the net sales.
• Sales discount refers to the eduction in the
price of a product or service that is offered
by the seller, in exchange for early
payment by the buyer.
• A sales discount may be offered when the
seller is short of cash, or if it wants to
reduce the recorded amount of its
receivables outstanding for other reasons.
• Sales returns and allowances refers to the
amount of 1) merchandise returned by a
customer, and 2) the allowances granted
to a customer because the seller shipped
improper or defective merchandise.
• Both the sales discount and sales returns
and allowances aim to reduce the entity's
receivables.
• Cost of goods sold is
how much the seller
buys the item or cost
of the item
• Income statement is the financial
statement that shows the result of the
operation, whether it made a profit o incurs
a loss for a given period of time.
• Generally, a firm prepares a financial
statement on a monthly basis
• For tax purposes, it is prepared quarterly
and annually.
• The income statement details the sales,
cost of sales, operating expenses, and
other expenses and / or income, if any.
• The cost of sales is the purchase price
and other expenses incurred in buying
products that a business sells.

• Operating expenses are expenses

incurred in running the business.
Otherwise, known as Earnings Before
Income Tax (EBIT)
• Other income includes interest income and
other incidental income.

• Other expense include the interest

expense or finance charges
• Interest income is earned from investments that pay
interest, such as in a savings account or certificate of
deposit.
• It is not the same as a dividend, which is paid to the
holders of a company's common or preferred stock, and
which represents a distribution of the issuing company's
retained earnings.
• Also, the penalties paid by customers on overdue
accounts receivable may be considered interest income,
since these payments are based on the use of the
company's funds (e.g., accounts receivable) by a third
party (the customer); some companies prefer to
designate this type of income as penalty income.
• Gross profit is at times referred to as gross
margin.
• Operating profit / loss is gross profit less
operating expenses
• Net profit/ loss is operating profit plus
income less other expenses
Break-even Point
• Break-even point is the point where the
business neither makes a profit or loss.

Sales = Variable Cost + Fixed Cost

Why does BEP matter?

• The break-even point helps business

owners determine when they'll begin to
turn a profit and assists them with the
pricing of their products.
 Px = vx + FC
P = Price per unit
x = number of units
v = variable cost per unit
FC = Fixed Cost
• To solve for x...

Px - vx = FC
x(P-v) = FC
x= FC
(P-v)
• To get the break-even point number of
units...
x= FC
(P-v)

• The break-even points in pesos...

BEP in Pesos = Unit Price x BEP Units

Calculate for break-even point in sales units
and pesos.
Unit Price = P20
Variable cost = P8
Fixed cost = P12,000
x= FC
(P-v)
First, we compute for BEPunits
x= 12000
(20-8)
x=12000
12
x=1,000 units
Therefore, BEPunits is 1,000 units
Then we compute for BEPpesos
using the formula:
BEPpesos = Unit Price x BEP Units
BEPpesos= 20 x 1,000
BEPpesos = 20,000

Therefore, BEPpesos is P20,000.

XYZ Restaurant, which sells only pepperoni
pizza, the expenses per pizza are:

Fixed Costs Variable Costs

General Labor ....P1,500 Flour.............P0.50

Rent........................P3,000 Yeast............P0.05
Insurance................P200 Water...........P0.01
Advertising..............P500 Cheese...........P3.00
Utitilies....................P450 Pepperoni........P2.00

Total........................P5,650 Total.................P5.56
• XYZ Restaurant sells its pepperoni pizza
at P10 per pie.
• Calculate for break-even point in sales
units and pesos.
Calculate for break-even point in sales units
and pesos.
Unit Price = P10
Variable cost = P5.56
Fixed cost = P5,650
First, we compute for BEPunits
x= 5,650
(10-5.56)
x= 5,650
4.44
x=1,272.52 or 1,273 units
Therefore, BEPunits is 1,000 units
Then we compute for BEPpesos
using the formula:
BEPpesos = Unit Price x BEP Units
BEPpesos= 10 x 1,273
BEPpesos = P12,730

Therefore, BEPpesos is P12,730.

Seatworks
A trading firm purchased a lot for
merchandise that costs P100,000 for
which it paid P10,000 fo transportation.
The firm sold the entire lot for P180,000.
The following are the incurred operating
expenses:
• Rent = P3,000
• Advertising = 15,000
• Store Supplies = 7,000
• Office Supplies = 4,000
• Heat, light, and water = 9,000
• Miscellaneous Expenses = 5,000

The firm borrowed money from the bank for

which it paid P6,000 in interest.
Prepare the income statement for the firm.
The Excelsior Merchandising purchased
merchandise costing P250,000 for the
month. It paid P10,000 for freight
(transportation) for the shipment of the
goods from the seler to its store. It insured
the merchandise for P25,000. It sold 75%
of the merchandise for P220,000.
Calculate all costs associated with the
merchandise.
For the current month, it incurred the
following expenses:
Delivery expense = P15,000
Gen. admin. expense = 50,000
Misc. Marketing expense = 75,000
Utilities expense = 30,000
For the current month, the firm earned
interest on promissory notes of its
customers amounting to P12,000. It paid
interest on a loan it made from a bank
amounting to P8,000.

Prepare the income statement of Excelsior

Merchandising
Carmen does buy and sell. She bought a
perfume for P450. She sold it for P600.
• How much is her margin?
• What was her rate of margin?
• What was the markup based on cost?
• How much profit did she earn?
• Find the break-even point in units and
pesos given that the unit price of a certain
commodity is P15, variable cost is P5,
and total fixed cost is P12,000.
• A company's variable cost per unit is P7
and total fixed cost is P9,000. If the
company sold a total of 10,000 units
yielding a total sale of P150,000, find the
BEP units and BEP in pesos.
sources

• Accounting for sales discounts. (n.d.). Retrieved January 29, 2018,

from https://www.accountingtools.com/articles/what-is-the-
accounting-for-sales-discounts.html
• Sales returns and allowances definition and meaning |
AccountingCoach. (n.d.). Retrieved January 29, 2018, from
https://www.accountingcoach.com/terms/S/sales-returns-and-
allowances
• Interest income. (n.d.). Retrieved January 29, 2018, from
https://www.accountingtools.com/articles/2017/5/10/interest-income
• Lopez Mariano, N. D. (n.d.). Business Mathematics (2016 ed.).
Manila: Rex bookstore.