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WEEK 5 - Key Concepts in Buying and Selling

The document discusses key concepts in buying and selling, including: 1) It explains the difference between markup and margin, with margin being sales minus cost of goods sold and easier to calculate, while markup is the amount the cost is increased to derive the selling price. 2) It provides an example showing the calculation of margin as 30% and markup as 42.86% based on cost. Margins are usually expressed as a percentage of selling price for simplicity. 3) The document also discusses single and series trade discounts, providing examples on how to calculate discounts and net invoice prices.

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Princess Joan Cornejo-Dela Luna
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95 views14 pages

WEEK 5 - Key Concepts in Buying and Selling

The document discusses key concepts in buying and selling, including: 1) It explains the difference between markup and margin, with margin being sales minus cost of goods sold and easier to calculate, while markup is the amount the cost is increased to derive the selling price. 2) It provides an example showing the calculation of margin as 30% and markup as 42.86% based on cost. Margins are usually expressed as a percentage of selling price for simplicity. 3) The document also discusses single and series trade discounts, providing examples on how to calculate discounts and net invoice prices.

Uploaded by

Princess Joan Cornejo-Dela Luna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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WEEK 5

KEY CONCEPTS IN
BUYING AND
SELLING
LEARNING Competencies
 Differentiate mark-up from Margins
(ABM_BM11BS-Ih-3)
 Describe how gross margins is used in sales
(ABM_BM11HS-Ih-4)
 Compute single trade discounts and discounts series
(ABM_BM11BS-Ih-5)
DIFFERENCE BETWEEN MARKUP AND MARGIN

MARGIN (also known as GROSS MARGIN)


is sales minus the cost of goods sold
is easier to arrive at and is, therefore, easier to use as well.
FOR EXAMPLE
If a profit sells for Php 200.00 and costs Php 140.00 to
manufacture, its gross margin is Php 60.00. Stated as a percent,
the margin is 30% (calculated as the margin divided by sales).
This is the markup based on sales or selling price.
DIFFERENCE BETWEEN MARKUP AND MARGIN

MARKUP
is the amount by which the cost of a product is increased in
order to derive the selling price. To use the preceding example,
a markup of Php 60.00 to the Php 140.00 cost yields the Php
200.00 selling price.
Stated as a percentage, the markup percentage is 42.86%
(calculated as the markup amount divided by the product
costs).
This is based on cost.
Therefore, the MARGIN is addressing the profit as it relates
to selling price; whereas, the MARKUP addresses the profit as
it relates to cost price.
MARGIN MARKUP
(MARKUP BASED ON
BASED ON COST
SALES)

COST Php 140 70% 100%

MARKUP Php 60 30% 42.86%

SELLING PRICE Php 200 100% 142.86%


MARKUP BASED ON SELLING
PRICE (MARGIN)
In most instances, however, markup is expressed as a percent of selling price. In this
case, the selling price is the base, hence, 100%.
Selling Price …………………………Php 450 (100%)
Cost……………………………………….Php 300 (66.67%)
Markup…………………………………..Php 150 (33.33%)

You will notice that the markup, if stated in terms of selling price as the base, is
lower (33.33%) as against markup based on cost (50%) although our markup in
pesos remains the same (Php 150.00) This is the primary reason why traders usually
express their markup based on selling price to make it appear that they have a lower
markup or gross profit.
TRADE DISCOUNTS

To entice buyers to buy, seller


usually offer trade discount.
It could be a single trade discount
of, say 20% or series of discounts
like 10%, 5%, and 5%.
It is generally wholesalers who
offer trade discount, but there are
also retailers who offer them.
SINGLE TRADE DISCOUNTS

Computing for discounts makes use


of our basic percentage formula
P=BR where
the base is the list price,
the rate is the discount rate,
the percentage is the discount.
As such: P=BR, (Discount=List Price
x Discount Rate)
EXAMPLE: Compute the discount for an item with a list price of Php 1250.00 subject to a 15% discount.
What is its net invoice price?

Given: List Price = Php 1250.00 Find: a. Discount


Discount Rate = 15% b. Net Invoice Price

Solutions:

a. Discount= List Price x Discount Rate b. Net Invoice Price= List Price-Discount
=Php 1250.00 x 15% =Php 1250.00-Php 187.50
=Php 187.50 =Php 1062.50
SERIES OF DISCOUNTS
In certain instances, a seller grants additional
discounts other than the discount ordinarily given
him or her.

For instance, aside from the regular 10% discount,


a seller may grant a special additional discount of
5%.

The series of discounts is, therefore, 10% and 5%.


This is not, however, equivalent to 15% as we
shall see later.
EXAMPLE: Compute the discount and the net invoice price if an item listed at Php 1250.00 is given a 10%
and 5% discount.

Given: List Price =Php 1250.00 Find: a. Discount


Discount Rates= 10% and 5% b. Net Invoice Prices

METHOD 1
We first multiply the list price by the first rate. To get the second discount, multiply the difference
between the list price and the first discount , and the second discount rate. We then deduct the second
discount from the said difference to get the net invoice price.
List Price…………………………………………..Php 1250.00 Our total discount is equal to the first
Less10% (Php 1250x10%)…………… 125.00 discount plus the second discount :

Difference………………………………………….Php 1125.00 Total Discount=Php 125.00+Php 56.25


Less 5% (Php1125x5%)………………….. 56.25 =Php 181.25
Net Invoice Price………………………………Php 1068.75
METHOD 2
(1) Deduct the first discount rate from 100% and multiply the list price by the rate obtained.
100%-10%= 90%
Multiply the list price by the first balance rate obtained in step (1).
List Price………………………………………………..Php 1250.00
x 90%
Php 1125.00
(2) Deduct the second discount rate from 100% and multiply the first balance obtained in (1) by the second
balance rate obtained.
First Balance………………………………………..Php 1125.00
Second Balance Rate………………………… x 95%
Net Invoice Price………………………………..Php 1068.75
This method involves a process similar to the use of the net invoice price rate (NIP rate) applied to the list
price to get the net invoice price. Our discount is still equal to the list price less the net invoice price.
CONVERTING MARKUP BASED ON COST TO MARKUP BASED
ON SELLING PRICE AND VICE VERSA

If we know the markup based on cost (MUcost), we


compute for markup based on selling price
(Musp)dividing the markup rate by selling price rate:
RATE BASED ON COST RATE BASED ON SELLING PRICE
SELLING PRICE 150% 100%
COST 100% ________
MARKUP 50% ________

Hence, MUSP= = = 33.33%

To get the MU based on selling price, set the selling rate as the denominator of MU based
on cost. Therefore, the cost rate= 100%- 33.33% = 66.67% . As such,

RATE BASED ON COST RATE BASED ON SELLING PRICE


SELLING PRICE 150% 100%
COST 100% 66.67%
MARKUP 50% 33.33%
Thank You!

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