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6.S: Summary

  • Page ID
    22101
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    Key Concepts Summary

    6.1: Figuring Out the Cost: Discounts (How Much?)

    • The relationship between distribution and pricing
    • Some of the types of discounts available to businesses and consumers
    • How to calculate the net price when only one discount is involved
    • How to calculate the net price when multiple discounts are involved
    • Converting multiple discounts into single discounts

    6.2: Markup: Setting the Regular Price (Need to Stay in Business)

    • The three components that compose a selling price
    • Calculating the markup in dollars and the relationship to pricing components
    • Calculating the markup as a percentage under two different approaches
    • Determining the price point where all costs are paid but no profits are earned—the break-even point

    6.3: Markdown: Setting the Sale Price (Everybody Loves a Sale)

    • How to take a regular selling price and make it into a sale price by applying markdowns
    • How to plan the merchandising of products that are always on sale

    6.4: Merchandising (How Does It All Come Together?)

    • Combining discounts, markup, and markdown into complete merchandising situations
    • Calculating the maintained markup when a product was sold at both a regular selling price and a sale price
    • How coupons and mail-in rebates impact product pricing

    The Language of Business Mathematics

    cost

    An outlay of money required to produce, acquire, or maintain a product, which includes both physical goods and services.

    coupon

    A promotion that entitles a consumer to receive certain benefits, usually in the form of a reduction of the selling price for a product.

    coupon handling expense

    A handling charge that is paid to channel members for redeeming a coupon.

    coupon marketing expense

    The expense associated with creating, distributing, and redeeming a coupon.

    coupon redemption expense

    The face value price reduction offered by a coupon.

    discount

    A reduction in the price of a product.

    expenses

    A business’s financial outlays incurred in the selling of a product.

    list price

    A price for a product that has been published or advertised in some way.

    loyalty discount

    A discount given from a seller to a purchaser for repeat business.

    mail-in rebate

    A refund that occurs after a product has been purchased.

    maintained markup

    The average level of markup that is maintained across all units sold at various price levels including the selling price and the sale price(s).

    manufacturer's suggested retail price (MSRP)

    A recommended product retail price that a manufacturer sets for a retailer based on market research.

    markdown

    A reduction from the regular selling price of a product resulting in a new lower sale price.

    marketing price adjustment

    Any marketing activity executed by a member of the distribution channel for the purposes of altering a product’s price.

    markup

    The process of taking a product’s cost and increasing it by a certain amount to arrive at a selling price.

    markup amount

    The dollar amount of the expenses and profit combined together into a single number; it represents the difference between the price and cost in dollars.

    markup on cost percentage

    The markup dollars expressed as a rate using cost as the base.

    markup on selling price percentage

    The markup dollars expressed as a rate using the regular selling price as the base.

    net price

    The price of the product after a discount is removed from the list price.

    profit

    The amount of money that remains after a business pays all of its costs and expenses.

    quantity discount

    A discount for purchasing larger quantities of a certain product.

    rebate marketing expense

    The expense associated with creating, distributing, and redeeming a rebate.

    rebate redemption expense

    The face value amount that a consumer will receive as a refund if a submitted rebate fulfills all rebate conditions.

    sale discount

    A temporary discount lowering the price from a product’s regular selling price.

    sale price

    A price for a product after a markdown that is lower than its regular selling price.

    seasonal discount

    A discount offered to consumers and businesses for purchasing products out of season.

    single equivalent discount

    A single discount rate that is equal to a series of multiple rate discounts.

    trade discount

    A discount offered to businesses only based on the type of business and its location in the distribution system.

    The Formulas You Need to Know

    Symbols Used

    \(C\) = cost

    \(d\) = discount rate or markdown rate

    \(d_1, d_2, ... d_n\) = multiple discount rates, where the subscript represents each discount up to a count of n discounts

    \(D\$\) = discount amount or markdown amount

    \(E\) = expenses

    \(L\) = list price

    \(M\$\) = markup amount

    \(MM\) = maintained markup

    \(MoC\%\) = markup on cost percentage

    \(MoS\%\) = markup on selling price percentage

    \(n\) = number of pieces of data, which in this chapter is the level of output

    \(N\) = net price

    \(P\) = profit

    \(P_{onsale}\) = planned profit amount when a product is sold at the sale price

    \(S\) = regular selling price

    \(S_{BE}\) = the selling price at the break-even point

    \(S_{onsale}\) = sale price

    Formulas Introduced

    Formula 6.1 Single Discount: \(N=L \times(1-d)\)

    Formula 6.2a Discount Amount: \(D\$=L \times d\)

    Formula 6.2b Discount Amount: \(D\$=L-N\)

    Formula 6.3 Multiple Discounts: \(N=L \times\left(1-d_{1}\right) \times\left(1-d_{2}\right) \times \ldots \times\left(1-d_{n}\right)\)

    Formula 6.4 Single Equivalent Discount: \(d_{equiv}=1-\left(1-d_{1}\right) \times\left(1-d_{2}\right) \times \ldots \times\left(1-d_{n}\right)\)

    Markup Formulas

    Formula 6.5 The Selling Price of a Product: \(S=C+E+P\)

    Formula 6.6 Markup Amount: \(M\$=E+P\)

    Formula 6.7 The Selling Price of a Product Using the Markup Amount: \(S=C+M\$\)

    Formula 6.8 Markup on Cost Percentage: \(MoC \%=\dfrac{M\$}{C} \times 100\)

    Formula 6.9 Markup on Selling Price Percentage: \(MoS \%=\dfrac{M\$}{S} \times 100\)

    Formula 6.13 Maintained Markup: \(MM=\dfrac{M\$\left(n_{1}\right)+(M\$-D \$)\left(n_{2}\right)}{n_{1}+n_{2}}\)

    Markdown Formulas

    Formula 6.10 The Sale Price of a Product: \(S_{onsale}=S \times(1-d)\)

    Formula 6.11a Markdown Amount: \(D\$=S \times d\)

    Formula 6.11b Markdown Amount: \(D\$=S-S_{onsale}\)

    Formula 6.12 Markdown Percentage: \(d=\dfrac{D\$}{S} \times 100\)

    Technology

    Calculator

    The following calculator functions were introduced in this chapter:

    Markup on Selling Price Percentage

    \(2^{nd}\) Profit to access this feature.

    Enter two of the three variables by pressing Enter after each input and using ­ and ¯ to scroll through the display. The variables are:

    \(\mathrm{CST}= \text{ The cost of the item}\)

    \(\mathrm{SEL}= \text{ The selling price of the item}\)

    MAR = The markup on selling price percentage (in % format)

    Press CPT on the unknown (when it is on the screen display) to compute.

    Contributors and Attributions


    This page titled 6.S: Summary is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Jean-Paul Olivier via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.