Question

5. For the Fourth of July, Ray (manager of Tucker’s Grocery) decided to try to sell some red, white and blue T-shirts with the Berryville logo and fireworks on them. Ray bought 100 of these T-shirts at $3.00 apiece and decided to sell them for $5.00 each. The shirts weren’t as popular as Ray had expected. By July 5, Ray had sold only 30 of the shirts. He decided to mark the shirts down to $4.00 apiece. By July 20, Ray sold 20 more shirts. He then marked the remainder of the shirts down to $3.00 each and sold the rest by July 30.

Part 1 - Please calculate the initial margin, markdown dollars, markdown percent, maintain margin dollars, and maintain margin percent for the T-shirts.

Part 2 – Based on the numbers found in Part 1, would you recommend Ray make a similar purchase next year? If Ray does decide to purchase the t-shirts again next year, would you recommend any changes to his pricing strategy? What and why?

Answer 1

1.)
Initial Margin		(5-3)*100
Margin Dollars		$200.00
Margin Percentage		200/(5*100)
		40.00%
Units	Rate	Amount
30	5	150
20	4	80
50	3	150
	TOTAL	380
Markdown Dollars		550-380
		120
Mark Down Percent		120/500
		24.00%
Maintain Margin Dollars		380-300
		80
Maintain Margin %		80/380
		21.05%
2.)
Yes Ray should do a similar purchase next year as it yeilds him profit
Yes, ray should maintain a constant pricing stratergy, the sales price
should have less margin but it should be constant
The Price should be constant as it would yeild him more customer
Loyality.

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