Question

How does one determine a mark-up on a product or service?

Answer 1

The difference between cost of any specific product or service is known as mark-up.It is generally expressed as a specific percentage over cost.Mark-up helps to cover the cost incurred on a product or a service and create the profit by adding a specific percentage into the total cost.The mark-up can be either expressed as fixed amount or any specific percentage over the cost or selling price.

The equation for calculation of mark-up is as follows-

Mark-up = Selling Price - Cost

Thus,calculation of mark-up percentage is -

Mark-up percentage = Sale price - Unit Cost/unit cost * 100

Therefore,the selling price at which any product or service should be calculated as-

Selling price = Cost + (Cost * Mark-up Percentage)

Example- A product named X with variable cost of $30 and fixed cost of $500000 is to be sold at a 20% mark-up on sales with an extimated unit sales of 50000 units,the calculation of sale price is as follows-

Total cost = Fixed cost per unit + Variable cost per unit  

Total cost = 500000/50000 + 30

Total cost = 10 + 30 = $40 per unit

Mark-up price for sale per unit = 40/1-mark-up percentage

Mark-up price = 40/1-0.2

Mark-up price = $50 per unit

therefore, to earn a mark-up of 20%,each unit of product X must be sold at $50