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Markup can be defined as the difference between the cost price and the selling price of the product. It is the total profit earned on an item. Markup is used in business terminology. Retailers mark up the selling price of the product by a certain percentage in order to earn a profit. It can also be said as a percentage over a cost price. Markup is used to calculate and estimate the profit and loss in a business. Markup is the opposite of discount. To be explained briefly, in discount we reduce the price from its actual amount, whereas in markup, we increase the actual amount of the product to a certain percentage.
Read Also: Math Formulas and Solved Examples
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Key terms: Markup, profit, selling price, cost price, markup formula, sale, percentage, discount
Markup Formula
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Markup is defined as the difference between the selling price of a product and the cost price. Markup formula is used to calculate this difference between the two prices. The markup formula is given as
\(\text{Markup} = \text{Selling Price - Cost Price}\)
Check Important Notes for Discount Rates
Markup Percentage
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Markup percentage can be defined as the percentage added to the original cost price. Markup percentage is used in businesses to calculate the percent of cost or the selling price that must be increased on a product in order to gain profit. It can be calculated by using the following formula:
\(\text{Sale Price }= \text{Cost} \times \text{(1 + Markup)}\)
or
\(\text{Markup} = \frac{\text{Sale Price}}{\text{Cost}} – 1\)
\(\text{Markup} = \frac{\text{(Sale Price - Cost)}}{\text{Cost}}\)
\(\text{Markup Percentage} = 100 × \frac{\text{(Sale price – Cost Price)}}{Cost}\)
Check Also: How to calculate percentage
Markup Pricing
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Markup Pricing can be defined as a method of adding a certain markup percentage to the cost price of the product in order to estimate its selling price. Markup price is the combination or total cost of both fixed and variable investments in order to generate a profit.
Markup is usually represented as a fixed amount or as a percentage of the total cost price or selling price. Retail markup is usually calculated as the difference between the wholesale price and retail price, as a percentage of wholesale.
\(\text{Markup Price Formula} = \text{Average selling price per unit - Average cost price per unit}\)
OR
\(\text{Markup Price Formula} = \frac{\text{Sales Revenue - Cost of goods sold}}{\text{Number of units sold}}\)
Check More: Loss Percentage
Markup and Margin
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Margin is the difference between the selling price and cost of goods sold while markup is the price by which the cost of a good is increased to determine the selling price. Markup is used to calculate the profit margin on a product.
Profit Margin can be calculated by using the following formula:
\(\text{Profit margin} = \frac{\text{(Selling Price – Cost Price)}}{\text{Selling Price}}\)
The co-relation between markup and margin can be given by:
\(\text{Margin} = 1 – \frac{1}{\text{(markup + 1)}}\)
OR
\(\text{Margin} = \frac{\text{markup}}{1} + \text{markup}\)
Example: To achieve a profit margin of 50%, the company mark up price percentage should be 100%.
Read More: Ratio to Percentage
Things to Remember
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- Markup is the opposite of discount. In Markup the percentage of the actual cost price is increased, while in discount a certain percent of cost price is decreased.
- Profit is the amount earned after selling a certain product. It is calculated by the formula: Profit = Selling Price - Cost Price
- Markup and markup percentages are not exactly the same. Different formulae are used for calculating each of them.
- Retail markup is calculated as the difference between the wholesale price and retail price, as a percentage of wholesale.
- Margin is the difference between the selling price and cost of goods sold while markup is the price by which the cost of a good is increased to determine the selling price.
Sample Questions
Ques: Calculate the selling price of an item if a merchant is using the markup as 50% on the cost of Rs 100. (3 marks)
Ans: Markup = 50% of the cost price
= 50% of 100
Therefore, Markup = 50
Selling price = cost + markup
= 100+50
= 150
Hence, the selling price of the item is Rs 150.
Ques: If the sale price of a vase is Rs. 500 and the cost price of the vase is Rs. 150. What would be the markup percentage? (3 marks)
Ans: Given, Sale price = Rs.500
Cost Price= Rs.150
we know, From the formula of markup percentage,
Markup Percentage = 100 × (Sale price – Cost Price)/Cost
Markup Percentage = 100 × (500 – 150)/150
= 100 × 350/150
= 233.33%
Thus, the markup percentage of the vase would be 233.33%
Ques: Calculate the selling price of a game if a shopkeeper is using a 40% markup rate on software for computers on the cost price of Rs.2000. (3 marks)
Ans: Markup = 40% × cost price
Markup = 40% × 2000
= \(\frac{40}{100}\) × 2000
= 800
Therefore, Markup = 800
Selling price = cost + markup
= 2000 + 800
= 2800
Hence, the selling price of the game is Rs 2800.
Ques: Calculate the cost price of a watch if the markup used by the retailer is 50%, and the selling price for that is Rs 5000. (3 marks)
Ans: Let us assume the cost price is x.
Markup = 50% of the cost, the selling price will be the sum of markup and cost.
5000 = x + (50/100) x
5000 = x + 0.5x
1.5x = 5000
x = 3333.33
Hence, the cost price of the watch is Rs. 3333.33
Ques: The Markup Rate used by a shopkeeper on a pair of shoes is 50%, and the Cost Price of the shoes is Rs.1000. Find the Selling Price of the shoes. (3 marks)
Ans: Markup = 50% of cost price
Markup = 50% of 1000
= 50/100 × 1000
= 500
Selling price = cost price + markup
= 500 + 1000
= 1500
Selling Price = Rs.1500
Hence, the selling price of the shoes is Rs. 1500
Ques: The overall sales revenue of a company is Rs 20000. The cost of the goods sold by the company is Rs 10000. The number of units sold by the company is 1000. What will be the markup price for the company? (3 marks)
Ans: We know,
\(\text{Markup Price Formula} = \frac{\text{Sales Revenue - Cost of goods sold}}{\text{Number of units sold}}\)
Markup Price = (20000 - 10000)/1000
Markup Price = 10000/ 1000 = 10
Therefore, Markup price for the company will be Rs 10 for each unit.
Ques: If Chameli had Rs. 600 left after spending 75% of her money, how much did she have in the beginning? (3 marks)
Ans: Chameli’s money left after spending = 600
Percentage of money after spending =75%
Beginning amount of chameli =?
Percentage of beginning amount = (100 − 75)% = 25%
Beginning amount of chameli = 25% x=600
→ \(\frac{25}{100} \times x\) = 600
→ \(\frac{1}{4} \times x\) = 600
→ x = 600 x 4
→ x = 2400
Therefore, Chameli had Rs.2400 in the beginning.
Ques: A hairdryer was purchased for Rs 5,400 including 8% VAT. Calculate the price before VAT was added. (3 marks)
Ans: Hair-dryer rate include VAT = 5,400
Tax percentage = 8%
Rate before VAT = ?
VAT = 8%
If VAT without Rs.100, price is Rs.108
Now, price is Rs.5,400
Therefore,
Price without VAT = \((\frac{100}{108} \times 5400)\) = 100 x 50 = 5000
Therefore, the price of the hair-dryer before the VAT was added is Rs. 5000
Ques: A car was bought at Rs 42,000. Its value depreciated at the rate of 8% per annum. Find its value after one year. (3 marks)
Ans: Principal amount (P) = Rs 42,000
Rate of interest (R) = 8% per annum .
Number of years(n) = 1 year
Formula:
Simple Interest = \(\frac{P \times R \times T}{100}\) = \(\frac{42000 \times 8 \times 1}{100}\) = 3360
Value after 1 year = 42,000 – 3,360 = 38,640
Therefore, the value of the car after 1 year is Rs. 38,640
Ques: The list price of a frock is Rs 220. A discount of 20% is announced on sales. What is the amount of discount on it and its sale price? (3 marks)
Ans: Marked price is the same as the list price.
20% discount means that on Rs 100 (MP), the discount is Rs 20.
By the unitary method, on Rs.1, the discount will be Rs.\(\frac{20}{100}\)
On Rs 220, discount = Rs \(\frac{20}{100} \times 220\) = Rs 44
The sale price = (Rs 220 – Rs 44) i.e., Rs 176
OR
A discount of 20% means for a MP of Rs 100, discount is RS 20.
Hence the sale price is Rs 80.
Using the unitary method, when MP is Rs.100, the sale price is Rs.80
When MP is Rs 1, the sale price is Rs\(\frac{80}{100}\).
Hence when MP is Rs 220, sale price = Rs \(\frac{80}{100} \times 220\)=Rs 176.
Ques: A VCR and TV were bought for Rs 8,000 each. The shopkeeper made a loss of 4% on the VCR and a profit of 8% on the TV. Find the gain or loss percent on the whole transaction. (5 marks)
Ans: Cost of VCR and TV = 8,000
Loss Percentage in VCR = 4%
Profit percentage in TV = 8%
Whole gain and loss = ?
Loss percentage = 4%
if C.P. is Rs.100, then S.P. is Rs. 96
when C.P. is Rs.8000
S.P. = \(\frac{96}{100} \times 8000\)
S.P. = 96×80
S.P. = Rs.7680
Profit percentage = 8%
if C.P. is Rs.100, then S.P. is Rs.108
when C.P. is Rs.8000
S.P. = \(\frac{108}{100} \times 8000\)
S.P. = 108 80
Selling price = Rs. 8640
Total selling price = Rs.7680+ Rs 8640 = Rs.16320
Total cost price = Rs.8000 + Rs.8000 = Rs.16000
Since the total selling price is greater than the total cost price .
Profit = Rs.16320 − Rs.16000 = Rs.320
Profit percent = \(\frac{profit}{CP} \times 100\)
= \(\frac{320}{16000} \times 100\)
= \(\frac{320}{160}\)
= 2%
Therefore, the gain percentage of the shopkeeper in the whole transaction is 2%
Ques: A milkman sold two of his buffaloes for Rs.20,000 each. On one he made a gain of 5% and on the other a loss of 10%. Find his overall gain or loss. (Hint: Find CP of each) (5 marks)
Ans: Selling price of two Buffaloes = Rs.20,000
Gain percentage = 5%
Loss percentage = 10%
Overall gain or loss = ?
if C.P. is Rs.100, then S.P. is Rs.105
when C.P. is Rs.20,000
S.P = \(\frac{100}{105} \times 20000\)
S.P. = 100 x 190.47
Selling price = Rs.19047
Loss percentage = 10%
if C.P. is Rs.100, then S.P. is Rs.90
when C.P. is Rs.20,000
S.P = \(\frac{100}{90} \times 20000\)
S.P = 100 × 222.222
Selling price = Rs.22222.22.
Total selling price = Rs.20,000+ Rs 20,000 = Rs.40,000
Total cost price = Rs.19047.62 + Rs.22222.22 = Rs.41269.84
Since the total selling price is less than the total cost price,
Loss = Rs.41269.84 − Rs.40,000 = Rs.1269.84
The overall loss of milkman = Rs.1269.84.
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