Markdown
and Extent of Markdown. Often
in retailing the selling price, S,
is subjected to the decrease process for a variety of reasons. Markdown
is the customary word used to describe the decrease process in
retailing. Formulas previously developed for the decrease process are
thus appropriate for the specific situation of markdown in retailing.
RD = Markdown Percent =
 |
| BD =
Reduced Selling Price = B(1 - RD) |
| where, B =
original selling price (S as used in the previous sections) |
In addition to finding markdown
percent and reduced selling price, a more important consideration is
to what effect the markdown has on profit, overhead and cost. These
concepts with appropriate mathematical procedures are illustrated in
the following examples.
Example 1:
Find the markdown percent when an item is reduced from $299.95
to $259.95.
|
Example 2: Find the reduced selling price when an item
originally selling for $299.95 is reduced by 25%.
| BD
= reduced selling price = B(1 - RD) |
| BD
= 299.95 * .75 = $224.96 |
|
Note: In both examples
above, no consideration was given to the effect on profit with these
markdowns. In the following examples, such consideration is given.
Example 3:
If the original selling price of $299.95 is marked down to
$259.95 and the cost is $200 with overhead 20% of cost,
does a sale at the reduced price result in a profit or loss?
|
Example 4: If the
original selling price of $299.95 is marked down to $224.96
and the cost is $200 with overhead 20% of cost, does a sale at
the reduced price result in a profit or loss?
The $74.99 decrease,
markdown, completely eliminates the profit of $59.95 and the
excess of $15.04 is an operating loss since not all of
the $40 operating expense is recovered with a selling price of
$224.96.
|
|
