Business expenses Major categories of business expenses: @ cost of goods © operating expenses (Cost of goods) The cost of goods is the cost of production or the price paid to a manufacturer or distributor for the merchandise. (Operating expenses) Operating expenses, overhead expenses, or overhead refer to all of the other expenses required to operate the business including but not limited to: * maintenance salaries + taxes + rent insurance + utilities + advertising oMarkup (Cost and selling price) The cost (C) refers to the price a merchandising business or retailer pays for a The selling price or retail price (SP) refers to the price a merchandising business or retailer sells a product. (Markup) The markup or markon (M) is the amount added ta the cost of an item ta cover the operating expenses and profit. It is the difference between the selling price and the cost. SP=C+MMarkup and margin (Markup rate) The markup rate (MR) is the percent markup based on cast (Mc) or the percent markup based on selling price (Msp). Msp Me MRe = c MRgp = SP (Margin or gross margin) Margin or gross margin is defined as the difference of sales to the cost of goods sold. * away to measure efficiency of using raw materials and labor in production. @Margin (Gross margin (profit) ratio) The grass margin ratio (GMR) is the ratio of the gross margin to the sales. It shows how much gross profit for every peso of revenue a company is earning. Example A retailer sold a product for P 100 whose cost is P 80. + The margin is P 20. + GMR = Margin + Sales = 20 + 100 = 20%. * The markup is P 20. + Markup% = Markup ~ Cost = 20 +80 = 25%.Markup formulas SP=C+M SP =C+(C x MR) M : MR = co. SP M. ~ 1+ MRe MRgp = 2Examples Example Kris Aquino bought a P 37 200 DSLR camera. She decided to sell it for a markup of 19% on cost. Find the selling price. Solution Given: C = 37200 MRce = 0.19 SP = C+(CxMRc) = 37200 + (37200 x 0.19) 37200 + 7068 = 44268 The selling price of the DSLR camera is P 44 268.Examples Example An apparel store sells a gym shorts for P 175 and has a markup of 37% on selling price. How much is the markup? Solution Given: SP = 175 MRgp = 0.37 Msp = MRep x SP 0.37 x 175 64.75 The markup is P 250.Examples Example The grocer purchases a gallon of mineral water for P 49.50 and sells it for P 56.75. What is the gross margin? Solution Given: C = 49.5 SP = 56.75 M = SP-C 56.75 - 49.5 = 7.25 The margin is P 7.25.Examples Example A hot-and-cold water dispenser sells for P 8 021.50 whose markup on its cost is 31.5%. Find the cost. Solution Given: SP = 8021.5 MR = 0.315 SP 1+MR 8021.5 1+ 0.315 8021.5 1.315 = 6100 The cost is P 6 100.Examples Example A laser printer costing P 8 750 is sold for P 12 250. Find the markup rate based on cost. Solution Given: C = 8750 SP = 12250 MRo = —= 12250 — 8750 8750 3500 8750 40%Markup Seatwork ‘@ A washing machine has a selling price of P 4 792. It had been marked up P 1248. What was its cost? © A wall clock cost P 608.40 and sell for P 780. What is the markup rate based on selling price? Solution Given: C = 608.4 SP = 780 Msp _ SP=C SP SP 780 — 608.4 — —~“eoaa 7 72% The markup rate on selling price is 22%. MRsp =Equivalent markup rates A single item can have two different markup rates, depending on the basis of the markup, selling price or cost. M M MRo = MRsp = 5 This means that given the markup rate on cost, there is a corresponding markup rate on selling price. Similarly, given the markup rate on selling price, there is a corresponding markup rate on cost.Equivalent markup rates MRsp MR = + TTiRssEquivalent markup rates. Example if the markup on an item is 25% of its price, then what percent is the markup on its cost? Solution Given: MRsp = 0.25 — _MRsp Mo = THis _ 0.25 ~ 10.25 4 = 0.93... = 335% The percent markup on the item's cost is 334%.Equivalent markup rates Example A shoulder bag is sold at 60% markup on cost. What is the percent markup on selling price for the shoulder bag? Solution Given: MRg = 0.6 MRe MPse = amis _ _06 1406 = 0.375 = 37.5% The percent markup on the shoulder bag’s selling price is 37.5%.Markdown (Markdown, markdown rate, sale price, markdown cancellation) Markdown (MD) is a price reduction from the original selling price or regular price (RegP) of a merchandise. » damaged goods » ald stocks « sales promotion + discontinued item + clearing inventory The markdown rate (MDA) is the markdown expressed as a percentage of the regular price of a merchandise. The sale price (SaleP) is the selling price of a merchandise after the markdown. When the sale is over, raising prices to the original price is called markdown cancellation.Markdown formulas MD = RegP x MDR wor = M2. SaleP = RegP — (RegP x MDR) RegP SaleP SaleP = RegP — MD RegP = 7 —upRMarkdown Example An antique jar with a regular price of P 35 800 is on sale for 26% off. What are the markdown and the sale price of the jar? Solution Given: RegP = 35 800 MDR = 0.26 MD = RegP x MDR SaleP = RegP — MD = 35 800 x 0.26 = 35 800 — 9 308 =9308 = 26 492 The markdown is P 9 308 and the sale price is P 26 492.Markdown Example An OLED TV marked down at 20% is on sale for P 70 265. Find its regular price. Solution Given: SaleP = 70 265 MDR = 0.2 Reg? = 7p 70 265 “7-02 = 87 831.25 The regular price of the OLED TV is P 87 831.25.Markdown Example A clothing store decided to remove hoodies with old designs from the inventory by marking them down from P 850 to P 552.50. At what rate were the hoodies marked down? Solution Given: SaleP = 850 RegP = 552.5 MD MD = RegP — SaleP MDR= Regt = 850 — 552.5 _ 297.5 = 297.5 850 = 35% The hoodies were marked down at 35%.Trade discount (List price, trade discount, net price) The list price (LP) of an item is its suggested price set by the manufacturer or supplier. A trade discount (TD) is a reduction from the list price typically offered between manufacturer and wholesaler, ar between wholesaler and retailer. The net price (NP) or invoice price of an item is the actual amount paid for the merchandise after the discount has been subtracted.TD, trade discount LP. list price TDR, trade discount rate TD =LP x TOR TDR = — Trade discount formulas NP, net price or invoice price NPA, rate of net/ invoice price NP=LP-TD NPR =1—TDR NP [P= NPATrade discount Example Find the net price of a shirt listed at P 925. The retailer is granted a 20% trade discount. Solution Given: LP=925 TDR=0.2 TD =LP x TOR NP=LP-—TD = 925 x0.2= 185 = 925 — 185 = 740 The net price of the shirt is P 740.Trade discount Example A retailer paid P 991.20 less for a bill of goods amounting to P 3 540 after he was allowed a trade discount by the wholesaler. What was the rate of trade discount? Solution Given: TD =991.2 LP =3540 TD TOR= PP 991.2 The trade discount rate is 28%.Trade discount Example After the reduction of a trade discount rate of 20% fram a bill of goods, the invoice price was P 12 000. What was the list price? Solution Given: TDR=0.2 NP = 12000 NPR =1-TDR Aon =1-02=08 =B— 7 18000 The list price is P 15 000.