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Markup & Markdown

by Sylvia Andrew
(Kota Kinabalu)











































A retailer bought a fax machine for RM2000. Operating expenses incurred were 5% based on cost. The retailer wanted a 10% net profit based on cost. Find:
i) The selling price
ii) Gross profit
iii) The breakeven price
iv) The new selling price and the total net profit if the retailer sold the fax machine at 10% markdown











































































































Comments for Markup & Markdown

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Jul 30, 2011
Markup & Markdown
by: Staff


The question:

by Sylvia Andrew
(Kota Kinabalu)

A retailer bought a fax machine for RM2000. Operating expenses incurred were 5% based on cost. The retailer wanted a 10% net profit based on cost. Find:

i) The selling price
ii) Gross profit
iii) The breakeven price
iv) The new selling price and the total net profit if the retailer sold the fax machine at 10% markdown


The answer:

If I understand the statement of the problem correctly, a retailer bought a fax machine which will be resold by the retailer for a profit.

i) The selling price

Since the retailer wants a 10% net profit based on cost, the selling price will be the total cost plus 10% of the total cost

Total cost = Purchase Price + Operating Expenses

Total cost = 2000 + 5% of 2000

= 2000 + .05 * 2000

= 2000 + 100 = 2100

Selling Price = 2100 + 10% of 2100

= 2100 + .10 x 2100 = 2100 + 210 = 2310


The Selling Price is: RM2310


ii) Gross Profit

Gross profit = Net Sales - Cost of Goods Sold

For this problem, Net Sales = sale price and the Cost of Goods Sold = the purchase price of the fax machine

Gross profit = Sale Price - Purchase Price

Gross profit = RM2310 - RM2000

Gross profit = RM310


iii) The breakeven price

The breakeven price is the price which brings in “just enough” revenue to pay for the total cost.

Total Cost = Purchase Price of Fax Machine + Operating Expenses

The Total Cost (computed in part i):

Total cost = 2000 + 5% of 2000

= 2000 + .05 * 2000

= 2000 + 100 = RM2100

The breakeven price = RM2100


iv) The new selling price and the total net profit if the retailer sold the fax machine at 10% markdown

new selling price after 10% markdown = regular retail price - 10%

The regular retail Selling Price (computed in part i) is: RM2310

new selling price = 2310 - 10% of 2310
new selling price = 2310 - 10% * 2310
new selling price = 2310 - .10 * 2310
new selling price = 2310 - 231

new selling price after 10% markdown = RM2079

Net Profit = Gross Profit - Total Costs (includes all operating costs, taxes, interest, etc)

The Gross Profit at the new (reduced) price:

Gross profit at the reduced price = Reduced Sale Price - Purchase Price

Gross profit at the reduced price = RM2079 - RM2000

Gross profit at the reduced price = RM79

Net Profit at the reduced price = Gross profit at the reduced price - Total Costs (includes all operating costs, taxes, interest, etc)

The total operating costs were determined in part i) to be RM100

Net Profit at the reduced price = RM79 - RM100

Net Profit at the reduced price = -RM21 (a loss of RM21)

The final answers:

i) The selling price = RM2310
ii) Gross profit = RM310
iii) The breakeven price = RM2100
iv) The new selling price = RM2079 and the total net profit = -RM21 (a loss of RM21) if the retailer sold the fax machine at 10% markdown


Thanks for writing.

Staff
www.solving-math-problems.com

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