Question:
I am attempting to determine the Retail price of an item that costs me
11.00. Our company wants to sell it at a markup of 40%. I calculated this
two ways, first the way I thought it should be done. Second, the way the
calculator does it (and my accountant).
- Cost + Cost*(percentmarkup/100)= retail price
11.00 + 11.00*.40 = retail price
11.00 + 4.40 = 15.40 retail price
- Using the calculators Mark Up key the answer is 18.33. Or 7.33 more than the cost or 67%.
I am confused by this Mark Up key and how it calculates. I used a cost
of $10.00 and marked it up 50%. I thought it should equal $15.00 but the
calculator says $20.00? This seems to be 100% markup, yes?
Can you explain the difference between the way I did it and the way a Business calculator does it?
thanks,
Nick
Hi Nick,
Percentages can be confusing partly because, in day-to-day language, we use the term percentage without saying percentage of what. That is precisely the problem here. You are calculating a percentage of what it cost you and your calculator is finding a percentage of what your customer will pay.
The item costs you $11.00 and your calculations will mark it up 40% of the $11.00.
Your calculator is looking at this from your customer's point of view. If your customer sees a ticket price of $18.33 on the item and knows you paid $11.00 and marked it up $7.33, then he calculates $7.33 as 40% of $18.33. Thus your cost of $11.00 is 60% of $18.33.
Your calculator finds the ticket price of $18.33 as follows.
60% of the ticket price is $11.00 and thus
0.60ticket price = $11.00, and hence
ticket price = $11.00/0.6 = $18.33
I hope this helps,
Penny