Accountancy Mathematics-Mark-Up & Margin

August 11th, 2006 Comments off
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In trading, the trader buys goods hoping to sell for more money than has paid.

The cost price is the price at which he pays for the goods and the selling price at which he sells.

If the selling price is greater than the cost price, a PROFIT is made. If selling price is lesser than the cost price then a LOSS is incurred.

Mark Up And Mark Down

Mark Up Is the profit expressed as a percentage of the COST PRICE.

Without this profit/mark up on cost price, the business cannot cover its business.

Mark Down is the loss expressed as a percentage of the COST PRICE.

Mark Down is due to the following reasons:

To encourage purchases in bulk, to dispose off old, damaged or obsolete stocks and to close a line of merchandise.

Formula:

Mark up = Selling price –Cost price x 100%

Cost Price

Margin

Is the profit expressed as a percentage of the SELLING PRICE

ILLUSTRATION 1

Question on Mark Up

A trader bought a piece of furniture for $2000 and sells it for $2,500.

(a) What is his mark up?

Later, he reduced the selling price ($2,000) by 5%.

(b) What is the revised mark up did he make?

Answer:

Profit = Selling price-Cost price

=$2,500-$2,000

=$500

(a)Mark up = Selling price –Cost price x 100%

Cost Price

=$500/$2,000 x 100%

=25%

(b) The revised Marked Up:

=Reduced Selling price =$2,500×0.95=$2,375

New Profit = Reduced Selling price-Cost price

= $2,375-$2,000

= $375

Revised Marked Up = $375/$2,000 x 100%

= 18.75%

ILLUSTRATION 2

Question: Calculate the Mark-Up if the margin is known to be 20%

Answer:

Let SP = Selling price CP= Cost price

Margin =Profit/SP x 100%

20%=Profit/SP x 100%

Profit=0.2SP=SP-CP

CP=SP-Profit

=SP-0.2SP

=0.8SP

Mark up = Margin x SP/CP

Mark up = 20% x SP/0.8SP

=25%

ILLUSTRATION 3

Question: A trader sells a machine for $30,000, gaining 72% on his cost price. How much did he pay for the machine? What was his profit?

Answer:

Let SP=Selling price CP= Cost price

SP= CP + 72%CP

30,000=CP+72%CP

CP=$30,000/1.72 =$17,441.86

Profit = SP-CP

=$30,000-17,441.86=$12,558.14

ILLUSTRATION 4

Question: Your one day’s takings is $5,000 and you expects your margin to be 30%. Calculate your profit for that day?

Answer:

Margin = Profit/ Selling price x 100%

30% =Profit/$5,000 x 100%

Profit =$5,000 x30/100

=$1,500

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