|
 |
Lesson
1
Retailing -Overview |
Objective:
To develop an understanding of the basic retailing concepts inherent
in the selling price of an item and a proficiency with the basic
mathematical procedures for this retailing consideration.
Mathematically, the basic concepts/procedures involve P = R ·
B applications and, most importantly, utilization of the
complement.
|
| Background:
For this course there are
five items that comprise the selling price for an item: |
- Net Price (NP,
symbolically) - the price a retailer pays to a vendor
for the item
- Freight/Transportation
(or Shipping: F/T, symbolically) - the expense a
retailer must pay to have the item shipped from the vendor
to the retailer.
- Other (normally storage
expense; Oth, symbolically) - any other expense paid by
the retailer directly related to the acquisition of the
item.
- Overhead, or, Operating
Expense (O, symbolically) - retailer expenses for rent,
compensation, employee benefits, utilities, advertising, etc
incurred in the usual course of business. A portion of
these expenses should be recovered by the retailer in the
selling price of the item.
- Profit (P, symbolically)
- a provision for some profit should be reflected in the
selling price of an item.
- Selling Price (S,
symbolically) - the price for the item determined by the
retailer reflecting the five expense items defined
above. Symbolically, the basic formula is
NP
+ F/T + Oth +O + P = S
Additionally,
there are four other relationships of importance in this
consideration:
|
- NP + F/T + BP, Billing Price
- NP + F/T + Oth = BP + Oth
= C, Cost (all expenses directly related to the item)
|
- O + P = M,
Markon (expenses and profit reflected in the selling price
in excess of the cost to the retailer for the item.
- C + M = S,
as a result of the previous two relationships.
|
The net price, NP,
is obtained by applying a percentage reduction, trade
discount (D, symbolically), to the list price or
suggested retail price (LP, symbolically).
Mathematically, the relationship is:
| D + NP =
LP (in terms of dollar amounts) |
| D(%) +
NP(%) = 100% (in terms of percents) |
D and NP are complements
of one another both in terms of dollar amounts and percents.
These concepts/relationships are of fundamental importance in
mastering the "Discount" topic.
The markon, M, is most often expressed either as a percent of
the cost (C) or, as a percent of the selling price (S). The
approach used herein in solving problems in the "markon"
topic differs from the approach used in the text.
The third topic in retailing is markdown - a reduction in the
selling price. Profit is affected first, followed by operating
expense, and lastly the cost. A markdown equal to the profit
results in a selling price called the break-even price.
Break-even is consistent with no profit- no loss. Loss
situations occur when the markdown causes the selling price to
fall below the break-even point so that all operating expenses
are not recovered (operating loss) or the cost of the
item itself is not fully recovered (gross loss).
Top
|
Reading
Assignment: As per
the syllabus. Please note that the symbols used herein are
not defined in the text. Also, and most importantly, the
solution method used herein differs from the method illustrated
in the text. The methods are consistent; but, the methods
illustrated herein are utilized to enhance student
understanding/ proficiency of concepts/methods.
Definitions: Covered in background material
and in text.
Overview Example: Determine the selling price for an item
having a list price of $400, trade discount of 30% and other
conditions as defined in the accompanying table.
- Determine net price, NP:
| |
% |
$ |
| D |
.30 |
120 |
| NP |
.70 |
280 |
| LP |
1 |
400 |
|
- % expressed as
decimals (100% = 1 as a decimal)
|
- D(%) and N(%) are
complements of one another
|
|
1 - .30 =
.70; 1 - .70 = .30
|
- D + NP = LP in terms
of dollars.
| .30
x 400 = 120 |
| .70
x 400 = 280 |
|
|
Top
| Item |
Definition |
Calculation |
Amount |
| NP |
As
done previously |
As
done previously |
280 |
| F/T |
10%
of NP |
.10x280 |
28 |
| BP |
BP=NP+F/T |
280+28 |
308 |
| Oth |
$12
for storage |
|
12 |
| C |
C=NP+F/T+Oth |
308+12 |
320 |
| C=BP+Oth |
| O |
15%
of Cost |
.15x320 |
48 |
| P |
50%
of Cost |
.50x320 |
160 |
| M |
M=0+P |
48+160 |
208 |
| S |
S=NP+F/T+Oth+O+
P |
280+28+12+48+160
or |
528 |
| S=C+M |
320+208 |
Breakeven Price = S-P = 528-160
= 368
20% Markdown (decrease)
would give a selling price of 422.40, as shown:
| Method 1 |
| BD=
B-RD·
B
|
| Method 2 |
BD=B(1-RD)
BD = 528 (.80)
BD= 422.40
|
| Either Method is Acceptable. |
|
Copyright © Jim Pack,
2000. All Rights Reserved. Last modified
11/20/07
|