Question

Ichabod runs a clothing store in London. He recently purchased 1000 dress shirts that had a manufacturer’s list price of $35. On each shirt there was a trade discount of 10%, 8% and 6% from the manufacturer. Ichabod’s store has operating expenses that are 35% of the selling price and rate of markup is 60% on selling price.  

a) He sold 400 shirts at the regular selling price. What was the total revenue from the first 400 shirts sold?

b) During a sale, Ichabod offered a markdown of 20% and sold another 250 shirts. What was the total revenue from the 250 shirts sold?

c) Ichabod sold another 200 shirts at the break-even price. What was the total revenue from the 200 shirts sold at the break-even price?

d) What was the rate of markdown from the regular price of the shirts to the break-even price of the shirts?

Please show all work with correct formulas

Answer 1

In the discount series, it is assumed that Ichabod avalied all discounts.

According to Trade Discounts provided, Purchase Price would be

List Priuce = $ 35

Less 10% Discount = $3.5

Price after first discount = $31.5

Less : 8% discount = 2.52

Price after second discount = $ 28.98

Less : 6% discount = $ 1.73

Purchase Priice = $27.25

Calculation of Profit Margin per Shirt

Cost Price = $27.25

Profit Margin = 60% on Sales

Therefore, Selling Price = (27.25 *100)/40 = $68.12

and, Profit = SP - CP = $68.12 - 27.25 = 40.87

a) He sold 400 shirts

Sales = 400 units * $68.12 per selling unit = $ 27,248

Less : Cost of Goods sold = 400 8 $27.25 = 10,900

Less: Operating Expenses 35% of 27,248 = 9537

Net Income = $ 6,811

Therefore, Sales Revenue = $ 27,248

b) He Sold 250 shirts

Sales = 250 * $68.12 = 17,030

Less : Markdown 20% = 3406

Total Revenue = $13,624

c) When Shirts sold at Break Even Price

200 * $ 27.25 = $ 5,450

Revenue for 200 shirts at break even point is = $ 5,450

d) The reate of markup provided at the time of calculating Mark up Price will be reduced to that price. Therefore thhe same rate should be reduced for break even point. The rate should be reduced by 60%