Business Math
Integrated Problems
Case Study Group 1:
For use with Chapter 8
1. Martha has a gift shop where she sells a variety of decorative items. She recently bought 30
crystal vases for $20.00 each. Martha adds a 40% rate of markup based on cost. From
experience, Martha estimates that 10% of the vases will be chipped or broken (which means she
can’t sell them). How much must Martha charge per vase in order to break even?
2. Martha also sells holiday ornaments. She purchased 120 ornaments for $2.00 each. She marks
them up 80% based on cost. She estimates that 15% of the ornaments will break. How much
must she charge per ornament in order to break even?
3. Sam’s Fruit Stand needs to decide how much to charge for fresh fruit and vegetables. Today
Sam bought 100 pounds of tomatoes for $0.60 per pound. He uses a 50% markup based on
cost. However, Sam also knows that at this time of year, approximately 20% of the tomatoes
will spoil before he can sell them. How much should Sam charge, per pound, so that he at least
breaks even?
4. Sam also bought 80 pounds of apples at $0.40 per pound. He uses a 50% markup based on cost.
But Sam knows that apples are less perishable than tomatoes so he only expects to lose 7% of
the apples through spoilage. How much should Sam charge, per pound, in order to at least
break even?
5. One of Sam’s customers, Nancy, owns a small restaurant. Nancy shops at the market so that she
gets the freshest produce available. Each night, Nancy offers a blackboard special that is offered
at the “market” price. Nancy calculates the market price using a 150% markup based on cost.
Today Nancy has bought ingredients to make cioppino, a seafood stew. She spent $165.00.
The recipe makes 20 servings but Nancy thinks she’ll probably only sell 90% of what she makes.
How much should Nancy charge in order to at least break even? Because Nancy has a fancy
restaurant, she wants to round the price to the nearest whole dollar rather than pennies.
6. On her menu, Nancy has listed several entrees that she always offers her customers. Those
items have a “fixed” price. For example, one of the most popular entrees is Roast Chicken with
seasonal vegetables. Nancy knows that her customers expect a price of no more than $8.95 for
that meal so she calculates her markup as 60% based on the selling price. If the chicken costs
$1.98 per serving, how much can Nancy spend per serving for the “seasonal vegetables”?
Case Study 2:
For use with Chapter 9
Cole Property Management Company received a bill for $3,500 with payment terms 3/10, n/30.
Samantha Cole, the owner of the company, knows that she will not have enough money in her business
checking account to pay the bill within 10 days and take the early payment discount. In fact, assume
that she has nothing in her account, not a single penny. Samantha has good credit so her bank is willing
to lend her all of the money to pay the bill. They charge an interest rate of 8% and they use ordinary
simple interest at ordinary time.
Assume that on exactly the day that the bill is due (n/30), Samantha will have collected enough money
from the renters in her apartment units to pay either the invoice or a loan. What should she do: borrow
the money from the bank or pay the invoice on the 30 th day when she has money in her account?
Case Study Group 3:
For use with Chapter 11
1. Rex bought a truck for $32,500. He made a down payment of $5,000 and financed the remainder for
60 months at $557.60 per month.
a. What is the loan amount?
b. What is the total cost of the truck?
c. What is the finance charge?
d. Rex wants to pay the loan off 13 months early. What is the rebate/savings fraction?
e. What is the finance charge rebate/savings?
f. What is the remaining balance on Rex’s loan? (How much does he still owe the bank?)
2. Edna bought a boat for $42,500. She made a down payment of $7,500 and financed the remainder
for 48 months at $887.69 per month.
a. What is the loan amount?
b. What is the total cost of the boat?
c. What is the finance charge?
d. Edna wants to pay the loan off 8 months early. What is the rebate/savings fraction?
e. What is the finance charge rebate/savings?
f. What is the remaining balance on Edna’s loan? (How much does she still owe the bank?)
Case Study 4:
For use with Chapter 14
Randy currently pays $985 per month in rent. He’s interested in buying a home of his own but doesn’t
know how large a loan he would qualify for. Because he has good credit and a sizeable down payment,
his bank is willing to offer a 30-year loan at 6% interest. How much could Randy borrow if his mortgage
P&I payment matched his monthly rent payment?
Case Study 5:
For use with Chapter 15
Let’s look at problem 4 (page 536) in a different light: We’ve been told that the Ko Minh Furniture Store
has monthly overhead of $14,500. The overhead covers the cost of running the business: rent, lights,
utilities, wages, property taxes, etc. but not the cost of the merchandise sold. Think back to Chapter 8.
Assume that the furniture store used the following markups by department:
The dining room department uses a markup based on selling price of 50%.
The bedroom furniture department uses a markup based on selling price of 40%.
The outdoor furniture department uses a markup based on selling price of 10%.
The children’s furniture department uses a markup based on selling price of 50%.
The living room furniture department uses a markup based on selling price of 40%.
a. What is the markup by department?
b. If the company is allocating overhead based on sales (question 4), which of the departments show a
monthly profit? (Profit is defined as the markup allowance less the overhead charge.)