# 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

 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