Mark up
- the cost price is the original price of the goods paid by the retailer must add an additional amount called mark up to the cost of the goods to cover the business expenses and to generate a profit. The sum of this cost and mark up is the retail (selling) price. In other words, mark up (gross profit or gross margin) is the difference in the retail price and the cost price, that is
R = C+M where R = retail price / selling price
C = cost price
M = mark up / gross profit
Mark down
- mark down is a decrease in the selling price. It is the difference in the old retail price and the new retail price that is
MD = OP – NP
Where MD = mark down
OP = old retail price
NP = new retail price
Price are sometimes marked down due to many reasons. To face stiff competition, to encourage purchases in bulk, to dispose off old, damaged or obsolete stocks and to close a line of merchandise.
Profit and loss
If M more than OE, net profit is obtained
If M less than OE, loss is incurred
Where M = mark up
OE = overhead expenses
Breakeven price – retail price just covers the cost price and the operating expenses, then it does not make any profit nor incur any loss
Breakeven price = cost price + operating expenses
The mark up equation, retail price = cost + mark up can be expressed as follow
Retail price = cost + net profit + operating expenses or in abbreviation
R = C + NP + OE
- the cost price is the original price of the goods paid by the retailer must add an additional amount called mark up to the cost of the goods to cover the business expenses and to generate a profit. The sum of this cost and mark up is the retail (selling) price. In other words, mark up (gross profit or gross margin) is the difference in the retail price and the cost price, that is
R = C+M where R = retail price / selling price
C = cost price
M = mark up / gross profit
Mark down
- mark down is a decrease in the selling price. It is the difference in the old retail price and the new retail price that is
MD = OP – NP
Where MD = mark down
OP = old retail price
NP = new retail price
Price are sometimes marked down due to many reasons. To face stiff competition, to encourage purchases in bulk, to dispose off old, damaged or obsolete stocks and to close a line of merchandise.
Profit and loss
If M more than OE, net profit is obtained
If M less than OE, loss is incurred
Where M = mark up
OE = overhead expenses
Breakeven price – retail price just covers the cost price and the operating expenses, then it does not make any profit nor incur any loss
Breakeven price = cost price + operating expenses
The mark up equation, retail price = cost + mark up can be expressed as follow
Retail price = cost + net profit + operating expenses or in abbreviation
R = C + NP + OE
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