Chapter 3:

Buying and Selling

Markup and Margins
 Markup

It is an amount added to the cost of

merchandise to obtain in a higher amount
known as its selling price
Thus, a markup is the difference between
the selling price and the cost of the
merchandise. We can summarize this
relationship in the following equation:

Markup = Selling Price - Cost

 For example, if a business marks the price
of a T- shirt bought for P100.00 to sell at
P150.00, P150.00 is the selling price, and
the P50.00 added to the cost of P100.00 is
the markup.

Selling Price= Cost + Markup

Cost= Selling Price- Markup
Markup Rate- markup usually
expressed as a percentage of the cost of
a product.

Markup= Markup rate x Cost

And so

Selling Price = Cost + (Markup Rate x Cost)

= Cost x (1 + Markup Rate)
Example:
A Dealer bought 15 crates of bananas
at P11,250.00. if the dealer imposed a
40% markup based on the cost, find the
1. cost per crate of the bananas; and
2. amount of markup per crate of
bananas.
Solution:
1. The cost per crate is given by Solving for the selling price
per crate, we have
Selling Price= Cost x (1+ Markup rate)
= (P750.00)(1+0.40)
= P1,050.00
Example:
A Dealer bought 15 crates of bananas at
P11,250.00. if the dealer imposed a 40%
markup based on the cost, find the
1. cost per crate of the bananas; and
2. amount of markup per crate of bananas.
2. To compute the markup per crate, we have
Markup= Selling Price- Cost
= P1,050.00 – P750.00
= P300.00.
Try This!

Example:
A shop sells a laptop computer at
P20,000.00. if each computer costs
P16,500.00, what is the markup rate?
 Margin

The margin (or gross margin) is the

selling price minus the cost of goods sold. It
is obtained by multiplying the selling price
by the percentage margin.
 Based on the definition, we can deduce that

Margin= Percentage Margin x Selling Price.

So,
Selling Price = Cost + (Percentage Margin x Selling Price).

Solving for the selling price in the equation , we have

Cost= Selling price –(Percentage Margin x Selling Price)

= Selling Price x (1- Percentage Margin).

Dividing both sides by the quantity (1-Percentage Margin), we

obtain the following formula for the selling price:
Example:
A home appliance retailer bought ten
electric fans at P1,050.00 each. He sold
each unit with a 25% markup based on
the selling price. Find the
1. selling price for each electric fan, and
2. margin per electric fan
Solution:

2.
Try This!!

Example:
A gift shop buys wallets for
P300.00 and sells them for P350.00.
Find the

1. percentage margin, and

2. markup rate
Markdown

A markdown is a reduction in the selling

price of merchandise. It is the difference
between the original selling price and the
reduced price.
Looking at the definition, we can see that the markdown can
be computed using the following formula:

or equivalently,

Combining the two formulas for markdown given above, we can

obtain a formula for the reduced price in the following manner:

Thus, we have
Example:
A light- emitting diode (LED) lamp regularly
priced at P1,948.00 is on sale for P1,499.00.
Compute the

1. Markdown; and
2. Markdown rate.
Solution:
1. To compute the markdown, we have

2.
Try This!!

Example:
A Fish vendor bought 100 kilograms
of bangus at P150.00 per kilogram. He
originally set the selling price to obtain a
40% gross margin. However, to ensure
that all will be sold, he gave a 15%
markdown. Determine the

1. original selling price; and

2. reduced price; and
3. amount of markdown per kilogram.