Question

1. A department’s maintained markup is 38 percent, reductions are $560, and net sales are $28,000. What’s the initial markup percentage?

2. Maintained markup is 39 percent, net sales are $52,000, and reductions are $2,500. What are gross margin in dollars and the initial markup as a percentage? Explain why initial markup is greater than maintained markup.

3. The cost of a product is $150, markup is 50 percent, and markdown is 30 percent. What’s the final selling price?

4. Manny Perez bought a tie for $9 and priced it to sell for $15. What was his markup on the tie?

5. Answer the following: (a) The Limited is planning a new line of leather jean jackets for fall. It plans to retail the jackets for $100. It is having the jackets produced in the Dominican Republic. Although The Limited does not own the factory, its product development and design costs are $400,000. The total cost of the jacket, including transportation to the stores, is $45. For this line to be successful, The Limited needs to make $900,000 profit. (A). What is its break-even point in units and dollars? (b) The buyer has just found out that The GAP, one of The Limited's major competitors, is bringing out a similar jacket that will retail for $90. If The Limited wishes to match The GAP's price, how many units will it have to sell? Expert Answer

Answer 1

1. Initial markup percentage is 41%.

Working:

Selling price	28000
Mark downs	560
Selling price before reductions	28560
Maintained markup	38%
Cost (28,000 / 138%)	20290
Initial markup = (28,560 - 20,290)	8270
Initial markup % (8,270 / 20,290)	41%

2.

Gross margin	14590
Initial markup %	46%

Working:

Selling price	52000
Mark downs	2500
Selling price before markdowns	54500
Maintained markup	39%
Cost (52,000 / 139%)	37410
Initial markup = (54,500- 37,410)	17090
Initial markup % (17,090/37,410)	46%
Gross margin (52,000 - 37,410)	14590
Initial markup %	46%

The initial markup is higher is higher than the maintained markup because, to attract the customers, the business needs to show some reductions in the lsae price. hnece the initial markup will be higher than the maintained markups.

3.

Final selling price

$157.50

Working:

Cost	$150.00
Mark-up	50%
Price after mark up (150 + 50% of 150)	$225.00
Mark down	30%
Price after mardkown (225 - 30% of 225)	$157.50

4.

Mark up %

66.70%

Working:

Purchase price	$9.00
Sales price	$15.00
Mark up (15 - 9)	$6.00
Matk up % (6 / 9) * 100	66.7%

5. a.

Break-even sales - units	23636
Break-even sales - dollars	2363600

Working:

Selling Price	$100
cost of the jacket	$45
Contribution margin	$55
Fixed costs	400000
Desired profit	900000
Break-even sales - units(400,000+900,000)/55	23636
Break-even sales - dollars (23,636 x 100)	2363600

5.b.

Break-even sales - units

28889

Working:

Selling Price	$90
cost of the jacket	$45
Contribution margin	$45
Fixed costs	400000
Desired profit	900000
Break-even sales - units(400,000+900,000)/45	28889