REPUBLIC OF THE PHILIPPINES
PROVINCE OF ZAMBOANGA DEL NORTE
SAINT JOSEPH COLLEGE OF SINDANGAN INCORPORATED
Senior High School Department
BUSINESS MATHEMATICS
MODULE 3: PRICING
Learning Target/s: At the end of the lesson, the learners CAN:
1. Illustrate how markon, markdown, and markup are obtained;
2. Describe how gross margins are used in sales;
Values: Flexibility
1 week
Time Duration: 2 hours
Reference/s: Solano, Irene P., Business Mathematics, Diwa Learning Systems, Inc., 2016, pp. 63 – 73
Mariano, Norma D. L., Business Mathematics, Rex Book Store, Inc., 2016, pp. 114 – 122
Getting Started:
Vida is a student who does buy and sell on her spare time. She buys and sells anything
she believes her classmates or schoolmates would buy. If she bought a perfume for P1,500.00 per
bottle and she wanted a markup of 20% on cost, how much will she sell it for? If she wants a
markup of 20% based on selling price of P1,700.00, how much will be her markup?
Cost refers to the purchase price of an article or item. If a trader bought a product for P100,000,
this is the cost of the product as far as the trader is concerned.
INITIAL MARKUP OR MARK-ON refers to the amount added to cost to arrive at the original
selling price. It is, sometimes, referred to as margin. In other words, it is the difference between
the selling price and the cost. In our example on cost, if he or she marked the merchandise he
or she bought for P100.00 to sell at P120.00, the P120.00 is the original selling price and the
PRICING
P20.00 is the initial markup or mark-on.
Cost --------------------------------------------------- P100
Plus: Initial Markup or Mark-on -------------- 20
Original Selling Price ----------------------------- P120
ADDITIONAL MARKUP refers to amounts added to the original selling price to arrive at a
new selling price. In our example, if the trader decides to increase his or her selling price from
P120.00 to P150.00, the new selling price, then the P30.00 he or she added to the original selling
price of P120.00 is the additional markup.
Original Selling Price ----------------------------- P120
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Plus: Additional Markup ------------------------ 30
New Selling Price ---------------------------------- P150
MARKUP CANCELLATION refers to the decrease in the new selling price that does not
decrease it below the original selling price. Hence, if the trader in our example saw that his or
her new selling price of P150.00 is not appealing to customers, he or she may decide to lower
his or her price. As long as the new lowered price does not go below the original selling price
he or she has previously set, the price reduction shall be termed as markup cancellation. If the
trader decides to set a new price of P140.00, the reduction (P150.00 – P140) is the markup
cancellation. If he or she decides to set it at P130.00, the P20.00 reduction (P150.00 – P120.00)
additional markup has been totally cancelled; hence, it is the markup cancellation. To reiterate,
markup cancellation refers to reductions in selling price that do not reduce below the original
selling price.
New selling price --------------------------------------------------- P150
Less: Markup cancellation ---------------------------------------- 10
Reduced selling price ---------------------------------------------- P140
Less: Markup cancellation ---------------------------------------- 20
Original selling price ----------------------------------------------- P120
MARKDOWN refers to reduction in the original selling price. If the trader in our example
reduces his or her selling price from P120 (original selling price) to P115.00, the P5.00 (P120.00
– P115.00) reduction in selling price is termed markdown. If he or she decides further to reduce
it to P110.00, the P10.00 (P120.00 – P110.00) reduction in selling price is markdown.
Original selling price ---------------------------------------------- P120
Less: Markdown ---------------------------------------------------- 5
New reduced selling price --------------------------------------- P115
Less: Markdown ---------------------------------------------------- 5
New reduced selling price --------------------------------------- P110
❖ DIFFERENCE BETWEEN MARKUP AND MARGIN
Margin (also known as gross margin) is sales minus the cost of goods sold. Gross margin
is easier to arrive at and is, therefore, easier to use as well. For example, if a profit sells for
P200.00 and costs P140.00 to manufacture, its gross margin is P60.00. Stated as percent, the
margin is 30% (calculated as the margin divided sales). This is the markup based on sales or selling
price.
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 P60.00 to the P140.00 cost yields the
P200.00 selling price. Stated as a percentage, the markup percentage is 42.86% (calculated as
the markup amount divided by the product cost). This is the markup 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 Sales) Cost
Cost P140 70% 100%
Markup P 60 30% 42.86%
Selling Price P200 100% 142.86%
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❖ MARKUP BASED ON COST
In our study of the income statement, we learned that the difference between the sales
(selling price) and cost of goods sold or cost of sales (cost) is the gross profit or margin, which
is also the markup that we have learned.
Selling Price (Sales) --------------------------------------- P450
Cost of goods sold (cost) -------------------------------- 300
Gross Profit (markup) ------------------------------------ P150
The markup in percent could be expressed as either based on cost or based on selling
price. Markup is based on cost if cost is taken as 100%, it being the based. As such, to express
the markup in terms of percent based on cost:
Selling Price -------------------------------------- P450 150%
Cost ----------------------------------------------- (P300) (100%)
Markup -------------------------------------------- P150 50%
To get the corresponding percent for the selling price and the markup, we use cost as the
base:
𝑃
R=
𝐵
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
Selling price as % of cost =
𝐶𝑜𝑠𝑡
𝑃450
=
𝑃300
= 1.5
= 150%
𝑀𝑎𝑟𝑘𝑢𝑝
Markup as % of cost =
𝐶𝑜𝑠𝑡
𝑃150
=
𝑃300
1
=
2
= 0.50
= 50%
If a seller, therefore, knowing the cost of the merchandise that he or she is selling wants a
certain percent of markup based on his or her cost, he or she can determine at what price he or
she is to sell his or her merchandise. For example, if he or she purchased a particular
merchandise for P200.00 and he or she wants a 30% markup based on cost, his or her selling
price would be:
Selling price -------------------------------------- P ? 130%
Cost ----------------------------------------------- (P200) (100%)
Markup ------------------------------------------- ? . 30%
Selling price = P200 × 130%
= P200 × 1.3
= P260
Hence,
Selling Price ------------------------------------- P 260 130%
Cost ----------------------------------------------- (P200) (100%)
Markup ------------------------------------------- P60 30%
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To prove both our selling price and our markup,
Selling Price = Cost + Markup
= Cost + (Cost × Markup rate based on cost)
= P200 + (P200 × 30%)
= P200 + P60
= P260
From above we see, that our selling price is P260.00 and our markup is P60.00, which
prove our previous computation.
❖ MARKUP BASED ON SALES OR 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 ----------------------------------- P450 100.00%
Cost --------------------------------------------- (P300) (66.67%)
Markup ----------------------------------------- P150 33.33%
To express the cost and the markup in percent, the selling price is used as the base:
𝑃
R=
𝐵
𝐶𝑜𝑠𝑡
Cost as % of the selling price =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
𝑃300
=
𝑃450
2
=
3
= 66.67%
𝑀𝑎𝑟𝑘𝑢𝑝
Markup as % of selling price =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
𝑃150
=
𝑃450
1
=
3
= 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 (P150.00). This is the primary reason why traders usually express their markup based in
selling price to make it appear that they have a lower markup or gross profit.
If a trader, therefore, wants a 30% markup based on selling price, he or she deducts 30%
from 100% to get his or her cost as a rate of selling price. Let us assume his or her cost is P200.
Selling price ---------------------------------------- P ? 100%
Cost -------------------------------------------------- (P200) (70%)
Markup --------------------------------------------- ? 30%
To get the selling price,
𝑃
B=
𝑅
𝐶𝑜𝑠𝑡
Selling Price =
70%
𝑃200
=
0.70
= P285.71
Our markup is 30% of selling price, therefore:
Markup = 30% × P285.71
= P85.71
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Hence,
Selling Price --------------------------------- P285.71 100%
Cost --------------------------------------------- (P200) (70%)
Markup -------------------------------------- P85.71 30%
❖ 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 the markup based on
selling price (MUsp), by dividing the markup rate by the selling price rate:
Rate based on cost Rate based on the selling price
Selling price ------------------------------------ 150% 100%
Cost ---------------------------------------------- (100) ? .
Markup ----------------------------------------- 50% ?
Hence,
𝑀𝑈𝑐𝑜𝑠𝑡 50% 𝟏 To get the MU based on selling price, set the selling
MUsp = = = or 33.33% price rate as the denominator of MU based on cost.
𝑆𝑃 𝑅𝑎𝑡𝑒 150% 𝟑
Therefore, the cost rate = 100% - 33.33% = 66.67%
As such,
In Peso Rate based on cost Rate based on selling price
Selling Price ------------ P450 150% 100.00%
Cost ---------------------- (P300) (100%) (66.67%)
Markup ----------------- P150 50% 33.33%
In the same manner, if we know the MUsp, we can get the MUcost by dividing the MUsp by
the cost rate:
1⁄ To get the MU based on cost, set the
𝑀𝑈𝑠𝑝 33.33% 1 2 𝟏
MUcost = = =23= × = or 50% cost rate as the denominator of MU
𝐶𝑜𝑠𝑡 𝑅𝑎𝑡𝑒 66.67% ⁄3 3 3 𝟐 based on selling price.
MARKDOWN
Traders would sometimes reduce the selling price to get rid of slow-moving merchandise
or out-or-style inventories to stimulate increased sales or to meet the prices of competitors. We
shall refer to these reductions in selling prices as markdown.
If an item selling for P450 is marked to sell at P400, the markdown is the difference
between the original or old selling price and the new selling price:
Markdown = Old selling price – New selling price
= P450 – P400
= P50
The markdown rate is generally expressed as a percent of the new reduced price; hence,
the new reduced price is the base (100%):
Old selling price -------------------------------- P450 100.00%
New reduced selling price ------------------ (P400) (88.89%)
Markdown --------------------------------------- P50 11.11%
𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛 𝑃50 1
Markdown rate (% of new selling price) = = = or 0.1111 or 11.11%
𝑁𝑒𝑤 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑃400 9
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A. Clarifying Understanding
1. Discuss briefly the following terms and its concepts.
a. Initial markup/mark-on
b. Additional markup
c. Markup cancellation
d. Markdown
2. Complete the following using the process discussed in the module:
Selling Price MUcost MUsp
Cost Markup
1 P150 P100 P__________ % %
2 P200 P100 P__________ % %
3 P350 P200 P__________ % %
B. Processing Questions:
If you are a manufacturer what would be the base of your markup, cost or sales? Why?
C. Lifelong Learning
Were there situations in your life that you could compare with or consider as markon, markup, or markdown?
Prepared by: Checked by:
JOSIT M. DUNTAR J. KIM O. BATULA
Subject Teacher SHS Principal
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REPUBLIC OF THE PHILIPPINES
PROVINCE OF ZAMBOANGA DEL NORTE
SAINT JOSEPH COLLEGE OF SINDANGAN INCORPORATED
Senior High School Department
BUSINESS MATHEMATICS
NAME: ___________________________________ SCORE: ____________________
GRADE / SECTION: ______________________ DATE: _____________________
PRICING
Activity No. 3 – Solving Exercises
I. Complete the table. Computations are not necessary. Write clearly and legibly. (1 point each, limit
to 2 decimal places for markup rates)
Selling Price Cost Markup MUcost MUsp
% %
a. P365 P300
b. P845 P700
c. P600 P120
d. P499 P300
e. P120 P100
f. P360 P140
g. P500 P135 20%
h. P1,200 P275 55%
i. P399 28%
j. P315 52%
II. Convert the following markup rates as needed. Limit to 2 decimal points only. Round off if
necessary. Show your solutions in a separate sheet. (2 points each)
MUcost MUsp MUcost MUsp
a. 12% f. 14%
b. 98% g. 72%
c. 125% h. 45%
d. 250% i. 250%
e. 300% j. 75%
III. Solve the following problems. Show your solutions neatly and legibly in a separate sheet. Limit
your final answers to 2 decimal places only, if needed. Make sure to enclose in a box or double
underline your final answer. (5 points each, 1-point deduction for every instruction not
followed)
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1. If a furniture dealer pays P11,048.62 for a dining set and sells it for an initial markup of
P3,951.38, what is the rate of the initial markup based on cost?
2. What is the cost of a kilogram of brown sugar if the markon for a kilogram of brown sugar is
P12.00, which represents a 20% markon based on cost?
3. Your retail business has incurred losses last year. So you decided to increase the original
selling prices of your items by 20%. If one of these items has an original selling price of P38.85,
what are the markup and the new selling price of the item?
4. What was the original selling price of a laptop that was bought for P49,999 if a markup rate
of 25% was applied to all items being sold at the store?
5. Your store has decided to apply a markdown rate of 35% on all women’s apparel in
celebration of Mother’s Day. If the original selling price of a dress is P890, what would be the
new selling price of the shirt?
6. Your mother bought an appliance worth P29,950 for only P19,995. How much was the
markdown rate applied by the store?
Prepared by: Approved by:
JOSIT M. DUNTAR J. KIM O. BATULA
Subject Teacher SHS Principal
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