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| Math Central | Quandaries & Queries |
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Question from Patricia, a parent: Hi - I am trying to figure out the fairest retail price for an ice cream scoop. We have an ice cream parlor and the cost of the ice cream we buy by the bulk container has recently been increased so now we must charge more for our scoops. We pay a wholesale price of $25.40 for 242 ounces of ice cream. The cost per ounce is $0.105. What is the formula for figuring out how much to charge retail per scoop? This is probably so simple but confusing to me. Please help. Thank you! |
Hi Patricia,
There are many ways to do this depending on what you have as a goal. Many retailers have a fixed percentage markup as a goal. If you have such a goal you can calculate the new price from the percentage markup. If, for example you have a goal of 15% markup then you can achieve this goal by increasing the cost per ounce by 15%, that is charging 1.15 × $0.105 = $0.121 per ounce.
You didn't mention a goal of this type so I expect it doesn't exist. In this case another method would be to calculate the percentage by which the cost of the bulk container has increased and pass that percentage increase on to your customer. For example suppose the bulk container cost $24.10 before the price increase. Thus your cost increase is $25.40 - $24.10 = $1.30. As a percentage of your previous cost that's ($1.30/$24.10) × 100 = 5.39%. To pass this on to your customers multiply the current price of a scoop by 1.0539 to find the new retail price.
I hope this helps,
Harley
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