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Buying and

Selling
• One important consideration in pricing the merchandise is to obtain the
possible largest profit. This can be done through successful pricing of
merchandise for sale.
• When determining prices of merchandise, the business owners have to
consider several factors such as the target customers, competitors,
suppliers, store policies and the nature of quality of the merchandise.
• We shall refer to the selling price as the decided selling price since the
(+) or (–) final adjustment is a matter decided only by the retailer.
• In symbols,
• Selling Price = Cost + Mark up
• Where mark-up = operating expense + net profit ± final adjustment

Thus,
Selling Price (SP) = Cost (C) + Mark up (MU)
Definition of terms
• COST PRICE:
• The price that a company or store has to pay for the goods it
is going to sell
• The price that has to be spent to produce goods or services
before any profit is added
• This is usually computed on a per unit basis.

• OPERATING COST:
• the price (per unit) incurred relative to the production and sale of a
commodity
Definition of terms
• PROFIT:
• money earned after the cost price and the operating costs are accounted for
after the sale of a commodity
• SELLING PRICE:
• the price at which the commodity is sold per unit
• To compute for the SELLING PRICE:
• S=C+E+P
• where S = Selling Price
• C = Cost Price
• E = Operating Expenses
• P = Profit
Mark UP

• the difference between the selling price


and the cost price sometimes referred
to as MARGIN or GROSS PROFIT.
Mark-up based on COST
• When based on cost, the mark up is added to the cost of the item to
determine the selling price as follows
Selling Price (SP) = Cost (C) + Mark-Up (MU)
Mark-UP(Amount) = Cost (C) x MU Rate (MUR)
𝑀𝑎𝑟𝑘−𝑢𝑝 𝐴𝑚𝑜𝑢𝑛𝑡
Mark-UP Rate (MUR) = 𝑥 100%
𝐶𝑜𝑠𝑡
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑆𝑃
Cost (C) = 1+𝑀𝑎𝑟𝑘−𝑢𝑝 𝑟𝑎𝑡𝑒 𝑀𝑈𝑅 𝑜𝑛 𝐶𝑜𝑠𝑡
Examples
1. If an item was purchased at P 700.00 and a mark-up rate of 40%
based on cost was added, find the amount of mark-up and the
selling price.
2. A retailer buys a dozen calculator at P 6000.00. if his mark-up
rate based on cost is 25%, how much is the selling price of each
calculator?
3. Mr. Bean buys ball pens at P 750.00 per box of 50 pcs. The
suggested retail selling price for each ball pen is P 19.50. Find the
suggested mark-up rate based on cost for each ball pen.
4. A store sold a box of rubber band at P 48.60. if the store added a
mark-up rate of 35% based on cost, how much did it purchase
the box of rubber band?
Mark-up based on Selling Price
• When a retailer has to purchase to replenish a merchandise whose
selling price is already given, the problem is to determine the cost he
shall pay for the merchandise and still have the desired rate of gross
profit on the selling price.
Mark-up(MU) = SP x MUR (based on SP)
𝑀𝑎𝑟𝑘−𝑢𝑝 𝑀𝑈
MUR (based on SP) =
𝑆𝑃
𝐶𝑜𝑠𝑡 𝑃𝑟𝑖𝑐𝑒 𝐶
Selling Price (SP) =
1−𝑀𝑈𝑅 (𝑏𝑎𝑠𝑒𝑑 𝑜𝑛 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒)
Examples
1. A businessman wishes to have a selling price of P 50.40 for a stapler
which he bought for P 37.80. find the a) mark-up and b) rate of mark-
up based on selling price.
2. A merchant bought a dozen of shirts for P 2100.00 and sold each shirt
for P250.00. based on the selling price, find the a) mark-up and b)
mark-up rate.
3. A dealer of appliances purchased 18 DVD players at P 3000.00 per
unit. If he sold each unit at 30% mark up based on selling price, how
much was the selling price per unit?
4. A grocery store plans to buy 12 dozens of canned goods at P 5,616.00
and get a 25% mark-up based on selling price. How much will be the
selling price per canned good?
Mark-up

• Significant difference between mark-up and


profit.
• profit accounts for both the cost price and operating
cost incurred by the business owner, mark-up only
accounts for the cost of raw materials necessary to
produce the item being produced for sale.
Mark-Down
• The difference between the REGULAR SELLING PRICE and the
SALE PRICE
• There are instance when a retailer buys quantities of
merchandise but was not able to sell them for various reasons.
Some of these reasons include overbuying, poor pricing and
outdated and worn-out appearance of merchandise or
possibly failure to forecast demand accurately. Thus, to attract
customers and to recover cost, the retailer has to reduce the
selling price of its merchandise during promotional sales e.g.,
clearance and mid-night sales.
Mark-down Amount (MD) = Old SP(OSP) – New SP (NSP)
or MD = OSP – NSP
MD = OSP x MDR
𝑀𝑎𝑟𝑘−𝑑𝑜𝑤𝑛 𝐴𝑚𝑜𝑢𝑛𝑡
Mark-down Rate (MDR) = 𝑥 100%
𝑂𝑙𝑑 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
𝑀𝐷
or MDR = 𝑥 100%
𝑂𝑆𝑃

New Selling Price = 𝑂𝑙𝑑 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑥 1 − 𝑀𝑎𝑟𝑘 − 𝑑𝑤𝑜𝑛 𝑅𝑎𝑡𝑒

or NSP = OSP (1-MDR)


Mark-down
• Mark-downs commonly happen when the mall decides to sell their items
at cut down prices to clear their warehouse collection.
• The other reasons why a mark-down is sometimes thought of as an
option for a business owner.
• the item is a perishable item and it is best to dispose of it sooner than simply throw
it away
• the item has become dirty or worn out, or possibly out of style
• competition forces the marking down of an item
Mark-down
• Remember that rates of mark-downs are always computed based on the
selling price.
• Note that it is possible that instead of making the business owner earn a
positive profit, selling an item on sale sometimes gives rise to a negative
profit. In this case, the profit is said to be a LOSS.
• When an item is given a selling price where the profit ends up being
zero, this is said to be the BREAK-EVEN PRICE. In this case, the selling
price is simply equal to the total of the cost price and the operating
expenses:
Examples
1. Baby COE Corp. sold office equipment for P16,380.00, which was
previously price at P18,700.00. Determine a) amount of mark-down
and b) mark-down rate.
2. During a mall-wide sale, a 5% mark down was applied to a T.V. set
priced P 10,700.00. Find the a) new selling price and b) amount of
mark-down.
3. A dozen of DVD players were purchased for P 21,600.00 and were sold
at 25% based on cost. If ten DVD players were sold and the remaining
two were sold at mark-down price of 25% based on selling price find
the:
1. Original selling price
2. Selling price of the two players sold at 25% of mark-down rate
3. Total sales from the dozen DVD players.
Buying Merchandise
Trade Discounts

• Is usually a percentage reduction in price of a


merchandise granted by a manufacturer or a
wholesaler to the retailer.
• In most cases, manufacturers recommend to the
retailers the price that should be charged to the
customers. This recommended price by the
manufacturer is called List Price (LP) or Suggested
Retail Price (SRP).
• Reasons why Trade Discount if offered:
• To adjust List Price to prevailing market prices.
• To secure the trade of desirable customers.
• To attract retailers to buy in large quantities.
Formulas
Trade discount amount = List price x Trade
discount rate
TD = LP x TDR
Net Price = List price - Trade discount amount
NP = LP – TD
Net Price = List price x (1- Trade Discount Rate)
NP = LP x (1 - TDR)
𝑇𝑟𝑎𝑑𝑒 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡
Trade Discount Rate = 𝑥100%
𝐿𝑖𝑠 𝑃𝑟𝑖𝑐𝑒
𝑇𝐷
𝑇𝐷𝑅 = x100%
𝐿𝑃
Complement
Complement - The difference between
Complement the single discount rate and 100%. The
complement is what percentage the
buyer will pay.

60%

40% For example, if the trade discount is


40%, the complement is 60% (100%
-- 40%).

Trade
Discount Using Complement:
$2,700 x .60 = $1,620
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Examples:
• If a business man buys a box of canned goods listed at P 680.00 with a
trade discount of 25%, how much will be the net price?
• XYZ Suppliers gives a trade discount of 18% on a certain appliance item
for a minimum purchase of 1 dozen at a list price of P 2,500.00 per piece.
If a retailer buys a dozen of the appliance, how much will he pay per
piece? For a dozen?
• The list price of a box of bar or soap is P1,250.00. If the retailer buys the
box at P 937.50, calculate the a) trade discount, and b)trade discount
rate.
Quiz:
• A retail dealer purchases a washing machine listed in the
manufacturer’s catalog at P 18,500.00 less 30% discount.
What is the invoice price of the washing machine?
• How much would RTM Hardware Store have to pay for 15
dozen set of tools of the quoted price is P 6,240.00 dozen less
25% trade discount?
• An electric range listed in AMP Company’s catalog at
P23,000.00 is billed to the retailer at P 20,100. Determine the:
• Amount of Trade Discount
• Trade Discount Rate
Successive Trade Discount
• On account of decline of market prices or to encourage further purchase
for more merchandise in large quantities or to receive frequent orders,
manufacturers and wholesalers offer successive trade discounts to
retailers. Giving successive trade discounts is a method of granting two
or more trade discounts to the retailers this method is also known as
DISCOUNT SERIES, CHAIN or MULTIPLE DISCOUNTS.
• Chain discounts are trade discounts in a series of two or more
successive discounts.
Formula

• In successive trade discounts, the first discount is


based on the List Price; the second, on the remainder
after deducting the first discount; the third, on the
remainder after deducting the first two discounts; and
so on.
NP(for k successive discount rates) =
LP x (1-TDR1)(1-TDR2),….,(1-TDRk)
Calculating Net Price with a
Chain Discount
The price of office equipment is $15,000. With a chain discount
of 20/15/10, what is the net price?
$15,000 $15,000 $12,000 $10,200
x .20 -- 3,000 -- 1,800 -- 1,020
$ 3,000 $12,000 $10,200 $9,180
x .15 x .10 Net Price
$1,800 $1,020

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Examples

• If a DVD player has a list price of P3,400.00 and


trade discounts of 20% and 10%, how much is
the a) net price, and b) trade discount?
• Ms. C. Navarro bought a flat television set
with a
listed price of P 14,600.00 subject to 15%,10%
and 5% trade discounts. How much did she pay?
Single Equivalent Trade Discount Rate(SETDR)

• An easy way of dealing successive trade


discount rates is to combine the rates into a
single equivalent trade discount rate:
• Formula
SETDR = [ 1 – (1-TDR1) (1-TDR2),…, (1-TDRk)]
x 100%
Example
• A certain item is subject to 20% and 10% trade
discounts. Find the single equivalent trade discount.
• A calculator has a list price of P845.00 subject to
20%,10% and 5% trade discounts. Find the: a) SETDR
b) Net Price and c) Trade Discount.
• The list price of an electric fan is P894.00 subject to
20% trade discount. What additional trade discount
rate should be given to bring down the price to
P607.92?
Cash Discounts
A cash discount is for prompt payment. It is not taken on freight,
returned goods, sales tax, or trade discounts.

Credit Period
Mar. 1 Mar. 31

Time period sellers give buyers to pay invoices.

Discount Period

Mar. 1 Mar. 10

Time period buyer has to take advantage of cash discount.


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Ordinary Dating Method
2/10, n/30 is read: “two ten, net thirty”
Example: $400 invoice dated July 5; terms 2/10, n/30; paid on
July 11.
$400 x.02 = $8 cash discount
$400 -- $8 = $392 paid
or
$400 x .98 = $392

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Receipt of Goods (ROG)
3/10, n/30 ROG - Cash discount period begins when the
buyer receives the goods.
Example: $900 invoice dated May 9, received goods July 8;
terms 3/10, n/30 ROG; paid on July 20.

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End of Month (EOM)
1/10 EOM -- 1% discount, up until the 10th of the following month.
Example: $600 invoice dated July 6; no freight or returns; terms 1/10
EOM; paid on August 8.
$600 x .01 = $6
$600 -- $6 = $594
or
$600 x .99 = $594

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End of Month (EOM)
2/10 EOM – Considered the “25th rule;” skip a month
Example: $800 invoice dated April 29; no freight or
returns; terms 2/10 EOM; paid on June 18.
No discount; $800 paid.

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Quiz:

• The quoted price of a drum set is P65,700.00 less 12%


and 10%: Find the a) Net Price and b) Amount of
Trade Discount.
• An article listed at P 12,100.00 was bought at 15%
and 10% discounts. Find the a) Net Price b) Amount
of Trade Discount and c) Single Equivalent Trade
Discount Rate.