Pricing + BE Quiz

Markup, Margin, Break-Even Analysis, and Pricing

• Markup refers to the additional amount of money added to the cost of a product, expressed as a percentage, to cover expenses and make a profit.
• Margin is the percentage of the price charged to customers that is not used to pay for the product, and it includes expenses and profit.
• In a typical retail scenario, a business buys a product from a manufacturer, adds a markup to the cost, and then sells it to a consumer, covering business expenses from the margin and keeping the extra as profit.
• Break-Even Analysis involves determining the number of units that must be sold at a given price to cover all operating costs, considering variable costs, fixed costs, and gross profit.
• Variable costs are costs that change in relation to the quantity of products or services sold, while fixed costs do not change.
• The break-even point is the number of units that must be sold at a given price to cover all operating costs and is calculated by dividing fixed costs by the gross profit.
• A Gross Profit is made with every sale, and it is used to pay for fixed costs.
• A practical example involves Cody, who opens a hotdog stand, and the calculation of his selling price, markup, margin, and break-even point.
• A teddy bear manufacturing company's break-even point is calculated based on its selling price, variable costs, and fixed costs.
• An example involving Subway illustrates the determination of price, markup, margin, gross profit, and break-even point based on the costs of producing a 6” assorted sub and the desire to make a specific profit per sub.
• The calculation of markup, margin, gross profit, and break-even point in various scenarios demonstrates the practical application of these financial concepts in businesses.
• The provided examples and explanations highlight the importance of understanding markup, margin, break-even analysis, and pricing in the context of business operations.