1. Maintained markup is 39%, net sales are $52000, and reductions are $2500. What are the gross margin in dollars, and the initial markup as a percentage? Explain why initial markup is greater than maintained markup. Cash discount = COGS x 2%, where COGS = Net sales maintained markup Cash discount = $52,000 ($52,000 x 0.39) Cash discount = $31,720 Cash discount = $31,720 x 2% = $634.40 Gross margin (GM) = Maintained markup + Cash discounts Alterations GM = ($52,000 x 0.39) + $634.40 $1,700 GM = $20,280 + $634.40 $1,700 GM = $19,214.40 Initial markup (IM) = (Maintained markup + Reductions) (Net sales + Reductions) Reductions = 500 + 5,000 + 2,000 = $7,500 IM = ($20,280 + $7,500) ($52,000 + $7,500) IM = $27,780 $59,500 IM = 0.467 or 46.7% The initial markup is greater than the maintained markup because the retailer must initially markup merchandise high enough to achieve the planned maintained markup after the reductions are taken.
2. The cost of a jacket is $150, markup is 50%, and markdown is 30%. What's the final selling price? Cost to produce = $150 Markup is 50% Profit margin equals $150*(.5) + $150 Selling Price with markup = $225
Apply 30% discount to $225 equals 225*(.3) = $67.5 Subtract the discount from $225 Markup price = $22567.5 Final Selling Price = $157.50 3. Manny Perez bought a tie for $9 and priced it to sell for $15. What was the markup ($ and %) on the tie? $15 $9 = $6 $6/$9 = $2/$3 = 0.66 = 66% markup 4. A buyer tells you that she realized a markup of $50 on an interview suit for a college senior. You know that her markup is 25 percent of retail. What did the suit cost her? $50/25% = $200
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