Right Price

Merchandise cost

Markup
 Merchandise Cost
 Billed cost – The price at which goods are purchased and which appears
on the invoice of the vendor’s bill .

 Inward freight or transportation charges- The amount the vendor may

charge for the delivery of merchandise. Inward freight plus billed cost is
called the billed delivered cost.

 Alteration and workroom costs- Consists of expenditure incurred in

altering goods for customer and /or inventory repair for damage ,assembly
,polishing. Functions of workroom are to alter or repair merchandise sold
or in stock and to prepare goods for delivery to customers.

 Cash Discounts-Discounts which vendors may grant for payment of an

invoice within a specified time. They are a % reduction in the billed cost
price of the merchandise; they are earned by the retailer for the prompt
payment of the invoice on or before the expiration of cash discount period
indicated on the invoice.
 Merchandise Cost

Billed costs
(plus) Inward freight or transportation
charges
=================================
Billed delivered cost
(plus) Workroom costs
=================================
Gross Merchandise cost
(minus) Cash Discount
=================================
Total cost of merchandise
 Markup

 Markup is the amt added to the cost price in order to establish the
retail price. Markup=Retail-cost
 The components of Markup are
1. Operating expense (Direct: salaries , rent and indirect expenses :
insurance, depreciation )
2. The anticipated reductions in the retail value of the inventory—
a. markdowns
b. discounts to employees
c. shrinkage /shortage
3. A satisfactory return—profit

4. Alteration costs- Hemline of men’s trouser, repair of damaged

inventory. This increases the value of the retail price
 Markup
RETAIL RETAIL COST
-COST OR -MARKUP OR + MARKUP
-------------- --------------- --------------
= MARKUP = COST = RETAIL
 Types of Markup

 Initial Mark up :The first price placed on the

merchandise for sale is its Original Retail. The price
received when it sells which may be different , is its final
selling price. That markup ‘hoped for ‘ is called initial
mark up.

 Maintained Markup :It is the final markup obtained by a

retail store when the merchandise is sold. It is based on
actual sale of goods rather than on planned sales.
Calculating markup% based on
retail
What is the markup % for a dress that costs $40
and retails for $80?
 Markup % based on retail= markup
-------------- x 100
retail
= ($80-$40) / $80 x 100
= 50%
Calculating markup% based on
cost
 Markup based on cost price is some times used by
small independently owned stores.

 Markup % based on cost = markup

-------------- x 100
cost
Calculating markup% based on
cost
A man’s suit retails for $210 and costs $120. What is the
markup% based on cost ?
Markup % based on cost = markup
-------------- x 100
cost
= ($210-$120) / 120 x 100
= $90/$120 x 100
= 75%
Comparison of markup based on
cost and retail
Compare the mark up % ‘s when based on retail
and on cost for a blouse that costs $24 and retails
for $40?
Based on retail Based on cost
-------------------------------------------------
16/40 = 40% 16/24 = 66.67%
Example
 Find the markup % on the following order.
Quantity $ cost $ retail
-----------------------------------------------------------
14 skirts 20 each 45each
25 blouses 18 each 40 each
10 belts 16 each 30 each
Find total cost and total retail
Total cost = $890
Total retail = $1,930
Find total markup amt 1930-890 =$1,040
Markup% = $markup/ $retail x 100
=1040/1930 x 100
=53.89%
 Re-Pricing
Retailers would prefer to sell most goods at the original
retail price. However a decrease or an increase in prices
is sometimes necessary to adjust to the existing business
environment .
1. Markdowns
2. Markdown cancellations
3. Additional markups
Markdowns

It is the lowering or reduction in the original

or the previous retail price on one item or
group of items. For example a sweater that was
retailed for $15 when it was received in the
store was reduced to $8.75 because it became
soiled. This price adjustment is called
markdown because the retail value of the
merchandise was lowered.
The Purpose of Markdowns

The major aims of reduction are:

 to stimulate the sale of merchandise to which
customers are not responding well.
To attract customers to stores by offering ‘bargains’.
To meet competitive prices.
Causes of Markdowns
1. Buying errors
 overbuying
 buying of wrong sizes.
 buying of poor styles, quality, materials and colors.
 poor timing in ordering of goods and receiving
merchandise later than ordered.
2. Pricing errors.
 setting initial price too high.
 not being competitive in price for the same goods.
Causes of Markdowns
3. Operational errors.
 poor stock keeping on the part of salespeople
and failure to maintain a periodic checkup of slow
moving items.
 careless handling resulting soiled and damaged
goods.
 failure to display merchandise properly.
 uninformed sales people.
 Markdown%
$ Markdown = Previous price – New, Reduced price

Markdown % = $ Markdown
------------------- x 100
Net sales
Example 1
The designer dept received 4 dresses in style 1436 that
retailed for $200. All 4 dresses were reduced to $140 before
they were sold. What is the markdown % on this style?
Markdown $ = previous price –new reduced price
= 4x($200 -$140)
= 4x60 = $240
Markdown% = 240/ 560 x 100
= 42.86%
Markdown Cancellations
Frequently merchandise is reduced for a special sale , and
after the sale is over the remaining goods are returned to
or toward their original price. This upward price change
on merchandise previously marked down is cancellation of
a markdown.
Markdown Cancellation is the upward price adjustment
that is offset against a former markdown.
 Example 1

 The buyer for the music shop received 200 CDs priced at $15.95 each. 50 CDs sold at
this price. The remaining CDs were marked down to $11.95 for a special sales event .
During the sale, 85 CDs were sold. After the sale the buyer re-priced the remaining
CDs to $14.95 and sold all of them.find (a) Total Markdown (b) Markdown
cancellation (c) Net markdown amt (d) Net markdown percent

Total markdown(prior to the sale)150 CDs reduced from $15.95 to$11.95

total markdown = 150x ($15.95 - $ 11.95) = $600
Markdown Cancellation( after the sale) 65 CDs were repriced to $14.95
markdown cancellation = 65 x ($11.95 - $14.95)=65 x $3.00 =$195
Net $Markdown = total markdown – markdown cancellation
=$600 - $195 = $405
Example 2
To find net markdown %, we need net sales.
sales prior to sale = 50CDs x $15.95 each = $ 797.50
sales during sales = 85 CDs x $11.95 each = $1015.75
sales after the sale = 65 CDs x $14.95 each = $ 971.75
----------------
Total sales $2785
Net markdown % = net markdown amt / total sales x 100
= $405 / $2785 x 100
= 14.54%
 Additional Markup

Additional markup is a price revision that increases selling

price above the initial retail price.
An additional markup is used to correct an error made by
the buyer or by the marking room personnel, which resulted
in the initial price being marked too low.
Another reason for an additional markup is to increase
retail to coincide with an increase in cost .
An additional markup might be taken on merchandise
already in stock when reordered merchandise is retailed at a
higher price.