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Practical Application: Calculating Markup & Markdown

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Shop owners and shop keepers need markups to make a profit and markdowns to drive more sales at certain times. Practice calculating markups and markdowns with these scenarios.

Markup and Markdown

All businesses do it. If they didn't do it, they would die. What is it? Markup. It's markups that give businesses the profit they need to grow and make even more products. But what happens when the business slows down? That's when a business uses markdowns to help encourage more customers to purchase. Markdown is seen when businesses lower their prices, give out coupons, and have special sales events.

Markup:

  • To calculate the markup percentage, divide the amount that has been added to the product cost by the cost and then turn it into a percentage. (Note: cost is the amount it took to make the product, as opposed to the price charged for the product).
  • To calculate the markup amount from a percentage, multiply the cost by the markup percentage and then add that amount to the cost.

Markdown:

  • To calculate the markdown percentage, divide the decrease in price by the original price and then turn it into a percentage.
  • To calculate the final markdown price from a percentage, multiply the original price by the percentage and then subtract that amount from the original.

Practice calculating markup and markdown with the following scenarios.

Analysis Questions

Use these questions to help analyze the following scenarios and figure out what kind of calculations are needed.

  • Do prices need to be increased or decreased? (Price increases mean that markup calculations are needed and price decreases mean markdown calculations are needed.)
  • Is it a percentage that is needed or an actual amount?

Profit

Mark designs his own unique line of T-shirts for sale at his shop in the downtown square. He wants to make a profit of at least 100% on each shirt he sells. If his shirt costs $8 to make, including the time he spent designing the artwork, how much does Mark's markup need to be in order for him to make 100% profit on each shirt?

This scenario is talking about markups because Mark wants to make a profit. Mark also wants to know an actual amount. So, performing those calculations, Mark gets this:

$8 * 100% = $8 * 1 = $8

Mark's markup amount is $8. So, each shirt needs to cost $8 + $8 = $16 or more for Mark to make at least 100% profit on each shirt.

Coupons

Mark is also planning ahead and he knows there will be times when he offers coupons to help him increase his sales. He is willing to go down to as much as 50% profit on each shirt. How much of a markdown percentage is this?

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