Business Mathematics: Buying and Selling

Business Mathematics: Buying and Selling

• Mark Up (MU): The amount of money added to the cost of a product to cover operating expenses and yield a profit for the business. It's the difference between the selling price and the cost price. Also referred to as margin or profit.

• Selling Price (SP): The price at which the item is actually sold.

• Cost Price (CP): The price inclusive of all expenses in producing the product.

• Formula:

  • MU = SP - CP
  • SP = MU + CP
  • CP = SP - MU

Mark Up Rate (MUR)

• Definition: A percentage of the cost added to determine the selling price.

• Formula (Based on Cost):

  • MU = MUR × CP
  • MUR = (MU/CP) × 100%

• Formula (Based on Selling Price):

  • MU = MUR × SP
  • MUR = (MU/SP) × 100%

Mark Down (MD)

• Definition: Reducing the original selling price of a product or good.

• Purpose:

  • Attract more customers and generate more sales.
  • Remain competitive with the prices of competitors.
  • Reduce excess inventory.
  • Clear old or slow-moving stock.

• Formula:

  • MD = OSP - RSP (Mark Down = Original Selling Price - Reduced Selling Price)
  • OSP = MD + RSP (Original Selling Price = Mark Down + Reduced Selling Price)
  • RSP = OSP - MD (Reduced Selling Price = Original Selling Price - Mark Down)

Mark Down Rate (MDR)

• Definition: A percentage decrease from the original selling price.

• Formula:

  • MD = MDR × OSP
  • MDR = (MD/OSP) × 100%

Mark On (MO)

• Definition: A price increase on a good or product. This adjustment is often temporary, usually done based on higher demand.

• Purpose:

  • Take advantage of peak demand.
  • Increase prices when supplies are low.

• Formula:

  • MO = ISP - PSP (Mark On = Increased Selling Price - Previous Selling Price)
  • ISP = MO + PSP (Increased Selling Price = Mark On + Previous Selling Price)
  • PSP = ISP - MO (Previous Selling Price = Increased Selling Price - Mark On)

Mark On Rate (MOR)

• Definition: Percentage increase from the previous selling price.

• Formula:

  • MO = MOR × PSP
  • MOR = (MO/PSP) × 100%

Difference Between Margin and Mark Up

• Margin (Mark Up) is the deduction of all costs from the selling price.
• It represents the maximum amount added to the product's cost to make the selling price attractive to a buyer.

Application of Gross Margin in Sales

• Gross margin is the portion of revenue remaining after deducting the cost of goods sold.
• The cost of the product is the fundamental benchmark.
• High production costs decrease margins, impacting sales performance.

Additional Notes on Buying and Selling

• Business owners may buy large quantities of raw materials ahead to achieve the lowest price available. This contributes to substantial margins.
• Bidding on lowest raw materials is a strategy for lower production costs and improved margins.
• Margin variations may be seen based on the type of business or establishment (e.g., cafeteria, restaurants, fast-food).

This quiz covers essential concepts in business mathematics, focusing on buying and selling. You will learn about mark up, selling price, cost price, and mark down. Test your knowledge of the formulas and their applications in real-world scenarios.