9.

1 Markup on Cost
Selling Price: price for product offered to public
Markup, margin, or gross profit: difference
between the cost and the selling price
Basic formula: Cost + Markup = Selling Price
(in this section markup is based on cost)

CM S

9.1 Markup on Cost

Example: A coffee maker is purchased for $15 and
sold for $18.75. Find the percent of markup based
on cost.
Markup = M = $18.75 - $15 = $3.75
Percent equation:
P RB
P = part
$3.75 R $15
B = base
$3.75
R = rate = percent
R
0.25 25%
$15

9.1 Markup on Cost

Example: A baseball glove is sold for $42,
which is 140% of cost. How much is the
stores cost?
Selling price= 140% of cost so the markup
is 40% of cost (cost is 100% of itself)
CM S
C 0.4C 1.4C $42
$42
C
$30
1.4

9.1 Markup on Cost

Example: North American Coins priced a proof
coin at $868, which was 112% of cost. Find (a) the
cost, (b) the markup as a percent of cost, and (c)
the markup.
Selling price= 112% of cost so the markup is 12%
of cost C M S
C 0.12C 1.12C $868
$868
C
$775
1.12
M $868 $775 $93

9.2 Markup on Selling Price

Sometimes markup is based on the selling
price rather than cost. The same basic
formula applies: C M S
The difference is that markup is now
considered a percent of the selling price
rather than cost

9.2 Markup on Selling Price

Example: An auto parts dealer pays $7.14 per 12
gallons of windshield washer fluid and the markup
is 50% on selling price. Find the selling price.
Markup = 50% of the selling price
C M S and M 50% of S C 0.5S S
C S 0.5S 0.5S
$7.14
C
$0.595
12
$0.595
S
$1.19 per gallon
.5

9.2 Markup on Selling Price

Example: A retailer purchases silk flowers for
$31.56 per dozen and sells them for $4.78 each.
Find the percent markup on selling price and the
equivalent percent markup on cost.
C M S M S C
$31.56
C
$2.63
12
M $4.78 $2.63 $2.15
M
S

2.15
4.78

.450 45%

M
C

2.15
2.63

.817 81.7%

9.2 Markup on Selling Price

Converting percent markup on cost to
percent markup on selling price:
MC
MS
100% M C
Converting percent markup on selling price
to percent markup on cost:
MS
MC
100% M S

9.2 Markup on Selling Price

Example: Convert a markup of 20% on
selling price to its equivalent markup on
cost.
MS
MC
100% M S

20%
20% 0.2

0.25 25%
100% 20% 80% 0.8

9.3 Markup with Spoilage

Markup with spoilage: Some items may not
be fit for sale or will go bad. Sometimes
they can be sold for a reduced price.
Sometimes they are a total loss. The selling
price has to be higher to make up for this
loss.

9.3 Markup with Spoilage

Example: The cost for 36 items is $540. If 6 items
cannot be sold, what is the selling price per item
for a % markup of 25% on selling price?
C M S C 25% S S
$540 .25S S $540 .75S
$540
S
$720
.75
$720 $720

$24 per item

36 6
30

9.3 Markup with Spoilage

The cost for 120 items is $360. If 10% are sold at
a reduced price of $2, what is the selling price per
item for a markup of 20% on cost?
C M S C 20%C S
1.2($360) S $432
# (10%) sold at reduced price .1120 12
# at regular price 120 12 108
reduced price sales 12 $2 $24
regular price sales $432 $24 $408
408
price per item
$3.78
108

10.1 Markdown
When merchandise does not sell at the original
price the price must be reduced. The basic formula
for markdown is:
reduced price original price markdown
Example: What is the reduced price if the original
price was $960 and the markdown is 25%?
markdown 0.25 $960 $240
reduced price $960 $240 $720

10.1 Markdown
Example: Given an original price of $240 and a
markdown of $96, what is the percent markdown
and the reduced price?

R B P R $240 $96
96
R
0.4 40%
240
reduced price $240 $96 $144

10.1 Markdown
Markdown equations:
Break-even point = Cost + Operating expenses
Operating Loss = Break-even point Reduced selling
price
Absolute loss = Cost Reduced selling price

10.1 Markdown
Given a cost of $25, operating expense of $8, and
reduced price of $22, what is the break-even point,
the operating loss, and the absolute loss?

break even pt $25 $8 $33

operating loss $33 $22 $11
absolute loss $25 $22 $3

11.1 Basics of Simple Interest

Simple Interest Formula: I PRT
I = interest, P = principal, R = rate of interest per
year, T = time in years
Example: Given an investment of $9500 invested
at 12% interest for 1 years, find the simple
interest.
I PRT $9500 0.12 1.5
I $1710

11.1 Basics of Simple Interest

Example: If money invested at 10% interest for 7
months yields $84, find the principal.
I PRT
7
$84 P 0.10 .0583P
12
$84
P
$1440
.0583

11.1 Basics of Simple Interest

Example: If $2600 is invested for 7 months and
yields simple interest of $144.08, what is the
interest rate?

I PRT
7
$144.08 $2600 R 1516.67 R
12
144.08
R
.095 9.5%
1516.67

11.2 Simple Interest for a Given

Number of Days

To find the exact number of days between two

dates (2 methods):
1.

Get the number corresponding to each date (Julian

date) from table 11.1 and subtract
2. Add the number of days in between the two dates
going month by month using the number of days in
each month

11.2 Simple Interest for a Given

Number of Days
Find the number of days from April 24 to July 7:
(1) Using table 11.1, April 24 = day 114
July 7 = day 188,
# days = 188 114 = 74
(2) # days left in April = 6
# days in May = 31
# days in June = 30
# days in July = 7
Total days = 6 + 31 + 30 + 7 = 74

11.2 Simple Interest for a Given

Number of Days

exact # days
T
365

Exact interest:
exact # days
T

Ordinary or bankers interest:

360
Example: Given an investment of $2600
invested at 10.5% interest for 180 days, find the
ordinary interest.
180
I PRT $2600 0.105
360
I $136.50

11.2 Simple Interest for a Given

Number of Days
Example: Bella missed an income tax payment.
The payment was due on June 15 and was paid
September 7. The penalty was 14% simple interest
on the unpaid tax of $4600. Find the penalty using
exact interest.
#days = 15 + 31 + 31 + 7 = 84 days
84
I PRT $4600 0.14
365
I $148.21

11.3 Maturity Value

Maturity Value = amount loaned + interest
Maturity Date = date the loan is paid off
M P I P PRT

M P(1 RT )
Example: A $12,200 loan is borrowed at 9.5% for 10
months. Find the interest and maturity value.
I PRT $12,200 .095

10
12

I $965.83
M $12,200 $965.83 $13,165.83

11.3 Maturity Value

Find the Time: If a loan of $7400 is borrowed at
9.5% has interest of $292.92, find the time in days
and the maturity value
I PRT $292.92 $7400 .095 T
$292.92
T
0.4167 years 0.4167 360
$7400 .095
T 150 days
M $7400 $292.92 $7692.92

11.3 Maturity Value

Find the Principal and Rate: If a loan is borrowed
with interest of $300 for 120 days with a maturity
value of $7800, find the principal and interest rate.
M P I $7800 P $300
P $7500
120
I PRT $300 $7500 R
$2500 R
360
$300
R
0.12 12%
$2500

11.4 Inflation and the Time Value

of Money
Inflation: continuing rise in the general price
level of goods and services
Consumer Price Index (CPI): one way to
measure inflation. The CPI reflects the average
change in prices from one year to the next.
Time Value of Money: the idea that loaning
money has value and that value is repaid by
returning interest in addition to principal.

11.4 Inflation and the Time Value

of Money
Present value: principal amount that must be
invested today to produce a given future value.
Future value: amount that a present value grows
to; also called the maturity amount.

M
M P(1 RT ) or P
1 RT

11.4 Inflation and the Time Value

of Money
Time Value of Money with simple interest of
5% per year.
2000
$1000
$1000

1 RT 1 (.05)10

2010

$1000

2020
$1000(1 RT )
$1000(1 (.05)10)

11.4 Inflation and the Time Value

of Money
Example: If the present value = $8000 at 8.5% for
140 days, what is the future value?
140 7
T

360 18
7
M P (1 RT ) $8000(1 0.085 )
18
M $8264.44

11.4 Inflation and the Time Value

of Money
Example: If the future value = $1985.50 at 9% for
180 days, what is the present value?

180
T
0.5
360
M
$1985.50
P

1 RT 1 0.09 0.5
P $1900

12.1 Simple Interest Notes

Promissory note: Legal note in which a person
agrees to pay a certain amount of money at a
stated time and interest rate to another person
Face value of note: principal (P)
Maturity value: M = P + I = P + PRT = P(1 + RT)
Term of the note: T often given in days (convert
to years for formulas)

12.1 Simple Interest Notes

Example: For a promissory note with face value of
$9500, term of 200 days, rate of 10%, and date
made of March 18, find the due date and the
maturity value.
Using table 11.1, March 18 = day 77
77 + 200 = day 277 = October 4 (due date)
200 5
T

360 9
5
M P (1 RT ) $9500(1 0.10 )
9
M $10,027.78

12.1 Simple Interest Notes

Example: For a simple interest note with maturity
value of $7632, term of 240 days, and rate of 9%,
find the principal.
240 2
T

360 3
M
$7632
P

1 RT 1 0.09 2
3
P $7200

12.2 Simple Discount Notes

Simple discount note: interest is deducted in
advance from the face value written on the note.
M = face value = maturity value (not the principal)
B = bank discount (similar to interest)
D = discount rate (similar to rate of interest)
T = time in years

B MDT similar to I PRT

12.2 Simple Discount Notes

Maturity for simple interest:

M P I P PRT
M P (1 RT )
Maturity for discount notes:
(similar but you subtract the discount from the
maturity)

P M B M MDT
P M (1 DT )

12.2 Simple Discount Notes

Example: For a simple discount note with a
maturity value of $6800, discount rate of 10%, and
time of 180 days, find the discount and the
proceeds.
180
T
0.5
360
B MDT $6800 0.10 0.5 $340
P M B $6800 $340 6460

12.2 Simple Discount Notes

Example: For a simple discount note with a
maturity value of $8200, discount of $205, and
date made of 2/9, due date of 5/10, find the
discount rate, time in days, and the proceeds.
T ( days ) 19 31 30 10 90
T ( years )

90
360

0.25

B MDT $8200 D 0.25 $205

$205
D
0.10 10%
$8200 0.25
P M B $8200 $205 $7995

12.3 Comparing Simple Interest

and Simple Discount

Similarities between simple interest notes

and simple discount notes:
1. Borrower receives money at the beginning
of each note.
2. Both notes are repaid with a single
payment at the end of the period.
3. Length of time is generally less than 1
year.

12.3 Comparing Simple Interest and

Simple Discount

Differences between simple interest notes and simple

discount notes:
1. Formulas
Discount notes: P M B M MDT
P M (1 DT )

2.

Interest notes: M P I P PRT

M P(1 RT )
A simple interest rate 12% (relative to present value) is
not the same as a simple discount rate of 12% (relative
to maturity value.

12.3 Comparing Simple Interest and

Simple Discount
1. Converting interest rate to discount rate

R
D
1 RT
2. Converting discount rate to interest rate
D
R
1 DT

12.3 Comparing Simple Interest and

Simple Discount

Example: Given an interest rate of 8% and a

time period of 240 days, find the corresponding
simple discount rate:
240 2
T ( years)

360 3
R
0.08
D

0.0759
2
1 RT 1 0.08 3
D 7.59%