PRICING

PROFIT OR LOSS
Lesson Objectives

At the end of this lesson, the students should be able to:

1. define cost, initial markup or mark-on, additional
markup, markup cancellation, and markdown;
2. differentiate markup and margin;
3. compute for markup based on cost;
4. compute for markup based on selling price; and
5. convert markup based on cost to markup based on selling
price and vice versa.
Lesson Objectives

At the end of this lesson, the students should be able to:

1. differentiate profit from loss;
2. illustrate how to compute for profit and loss;
3. prepare a simple income statement for a trading firm;
4. define break-even; and
5. compute for break-even point.
 Definition of Terms
Cost – purchase price of an article

Initial markup – amount added to cost to arrive at the

original selling price

Additional markup – amounts added to original selling price

to arrive at a new selling rice
Markup cancellation – decrease in new selling price that
doesn’t decrease it below the original selling price
Markdown – reduction in the original selling price
 Markup and Margin
Margin – sales minus the cost of goods sold
(markup based on sales)
Markup – amount by which the cost of a product is
increased in order to derive the selling price
(markup based on cost)
the margin is addressing the profit as it relates to selling price;
the markup addresses the profit as it relates to cost price.
 Markup Based on Cost
Sales selling price ₱450 150%
Cost of goods sold (Cost) ₱300 100%
Gross profit (Markup) ₱150 50%
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
Selling price as % of cost =
𝐶𝑜𝑠𝑡
₱450
= = 1.5 = 𝟏𝟓𝟎%
𝐏 ₱300
R= Markup as % of cost =
𝑀𝑎𝑟𝑘𝑢𝑝
𝐁 𝐶𝑜𝑠𝑡
₱150
= = 0.5 = 𝟓𝟎%
₱300
Markup Based on Selling Price
Sales selling price ₱450 100%
Cost ₱300 66.67%
Markup ₱150 33.33%
𝐶𝑜𝑠𝑡
Cost as % of selling price=
𝐏 ₱300 2
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒

R= =
₱450
= = 𝟔𝟔. 𝟔𝟕%
𝐁 3
𝑀𝑎𝑟𝑘𝑢𝑝
Markup as % of selling price =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
₱150 1
= = = 𝟑𝟑. 𝟑𝟑%
₱450 3
Converting Markup Based on Cost to Markup
Based on Selling Price and Vice Versa
(Rate based on:) Cost Selling Price
Sales selling price 150% 100%
Cost 100% 66.67%
Markup 50% 33.33%

𝐌𝐔𝐜𝐨𝐬𝐭
𝐌𝐔𝐬𝐩 =
𝐒𝐏 𝐫𝐚𝐭𝐞
50% 1
= = = 𝟑𝟑. 𝟑𝟑%
150% 3
The cost rate = 100% − 33.33% = 𝟔𝟔. 𝟔𝟕%
Converting Markup Based on Cost to Markup
Based on Selling Price and Vice Versa
(Rate based on:) Cost Selling Price
Sales selling price 150% 100%
Cost 100% 66.67%
Markup 50% 33.33%

𝐌𝐔𝐬𝐩
𝐌𝐔𝐜𝐨𝐬𝐭 =
𝐂𝐨𝐬𝐭 𝐫𝐚𝐭𝐞
33.33% 1
= = = 𝟓𝟎%
66.67% 2
 Markdown
If an item selling for ₱450 is marked to sell at ₱400,
the markdown is the difference between the
original or and the new selling price

Markdown = Old selling price – New selling price

= ₱450 – ₱400
= ₱50
 Markdown
The markdown rate is generally expressed as a percent of the
new reduced price; hence, the new reduced price is the base:

Old selling price ₱450 112.5%

New reduced selling price ₱400 100%
Markdown ₱ 50 12.5%
𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛
Markdown rate =
𝑁𝑒𝑤 𝑆𝑒𝑙𝑙𝑖𝑛𝑔
₱50 1
= = = .125 = 𝟏𝟐. 𝟓%
₱400 8
 Markdown
The markdown rate can also be expressed as a percent of the
old selling price; hence, the old selling price is the base:

Old selling price ₱450 100%

New reduced selling price ₱400 88.89%
Markdown ₱ 50 11.11%
𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛
Markdown rate =
𝑂𝑙𝑑 𝑆𝑒𝑙𝑙𝑖𝑛𝑔
₱50 1
= = = .1111 = 𝟏𝟏. 𝟏𝟏%
₱450 9
Income Statement for a Trading Firm

Income statement – financial statement showing results of

operation

Gross sales – total sales

Sales discount, sales returns and allowances
are deducted from gross sales to arrive at the net sales
Cost of goods sold or cost of sales – how much the seller
buys the item is the cost of the item
Income Statement for a Trading Firm

Operating expenses – expenses incurred to run the business

Other income – interest income and other incidental income

the firm earns like rent income

Other expense – interest expense or finance charges

financial institutions charge firms for their services

Operating profit/loss – gross profit less operating expenses

Net profit/loss – operating profit plus other income less

other expense
 Break-even Point
Sales = Variable Costs + Fixed Costs

If we let x represent the number of units to break-even:

Px = vx + FC
where P – unit price x – number of units
v – variable cost per unit FC – total fixed cost

The break-even point in number of units would be:

𝐅𝐂
𝐱=
(𝐏 − 𝐯)

BEP in Pesos = Unit Price × BEP in Units

 Break-even Point
Calculate the break-even point in sales units and sales dollars
from the following information:

Unit price ₱20 Variable cost ₱8 Fixed costs ₱12,000

𝐅𝐂
𝐁𝐄𝐏 𝐢𝐧 𝐔𝐧𝐢𝐭𝐬 (𝐱) =
(𝐏 − 𝐯)
₱12,000 ₱12,000
= = = 1,000 units
(₱20 − ₱8) ₱12

BEP in Pesos = Unit Price x BEP in Units

= ₱20 × 1,000 = ₱20,000
Exercises
Answer the following:
Complete the table:
Selling Price Cost Markup 𝐌𝐔𝐜𝐨𝐬𝐭 % 𝐌𝐔𝐬𝐩 %
1. ₱500 ₱120
2. ₱400 ₱45
3. ₱500 70%
4. ₱1,000 45%

5. Find the break-even point (in units and in pesos) of a

commodity given a unit price of ₱25, variable cost of
₱5, and total fixed cost of ₱11,500.