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Chapter 17 - Chapter 17 Many first add a standard markup to...

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Chapter 17 Many first add a standard markup to the average cost of the product they sell. Pricing decisions should be set on sales volume, costs, and total profit. Markups A dollar amount added to the cost of product to get the selling price, usually expressed as a percentage of the selling price. Ie: .50 added to 1.00 is $1.50; therefore, a 33.3% markup. Necessary to cover costs of distribution and allow middlemen to make a profit. 1. Standard Percentage : applied to all product handles. Simplifies pricing process. Allows them to concentrate on getting products to customers. Often related to the company’s desired or expected gross margin 2. Markup Chain : Sequence of markups firms use a different levels in a channel. This process determines the price structure in the whole channel. 3. Markups Not Equal to profits : high markups don’t always translate into high profits. It may reduce demand for the product where the seller loses money due to low sales volume. 4. Stockturn rate : Number of times the average inventory is sold in a year. Low rates increase inventory carrying costs and tie up capital. Fast moving items have lower markups while slower moving items have higher ones.
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