# Study Sheet of Markup and Markdown

## Accounting Terms

• Markup is the amount of money above their cost of a product or service that a business will charge for that product or service.
• The Price of a product or service is what a business is charging after it applies a markup.
• Markdown is the reduction in price of a product or service based on a percentage of the original price.
• The Original Price of a product or service is what a business was charging before it decided to apply a markdown.
• The Sale Price of a product or service is what a business is charging after it applies a markdown.

## Markup from Cost

• Also known as Cost-Plus-Markup
• The Markup Rate is expressed as a percentage
• Given two of Price, Cost, and MarkupRate:

Price = Cost x (1 + MarkupRate)

Cost = (Price)/(1 + MarkupRate)

MarkupRate = (Price/Cost) – 1

## Markup from Price

• The markup rate is how much (i.e., what percentage) of the price is markup
• Markup from Price gives a business a set percentage of profit across different products
• The Markup Rate is expressed as a percentage
• Since the Markup Rate is the percentage of the price that is markup, it can never exceed 100%
• Given two of Price, Cost, and MarkupRate:

Price = Cost/(1 – MarkupRate)

Cost = Price x (1 – MarkupRate)

MarkupRate = 1 – (Cost/Price)

## Pricing Perishables

• Assumes some portion of the product will spoil and become unsellable
• A second round of markup that adds the cost of the unsellable product evenly to the balance of the sellable product
• For example, if a 40-pound box of bananas yields 5 pounds of spoilage then the price on 35 pounds must be marked up to cover the cost of the spoiled 5 pounds
• The Spoilage Rate is expressed as a percentage
• Given two of NewPrice, OldPrice, and SpoilageRate:

NewPrice = OldPrice/(1 – SpoilageRate)

OldPrice = NewPrice x (1 – SpoilageRate)

SpoilageRate = 1 – (OldPrice/NewPrice)

## Markdowns

• Businesses generally use markdowns to generate sales and/or clear inventory
• The Markdown Rate is expressed as a percentage
• Given two of SalePrice, OriginalPrice, and MarkdownRate:

SalePrice = OriginalPrice x (1 – MarkdownRate)

OriginalPrice = SalePrice/(1 – MarkdownRate)

MarkdownRate = 1 – (SalePrice/OriginalPrice)

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