After the price to the retailer has been marked up to determine the regular selling price, the retailer may discount the regular selling price to offer the goods to the consumer at a lower sale price. The reduction from the regular selling price is called a markdown. The purpose of a markdown may be for promoting sales, to match competitors' prices, or to clear out inventories that are discontinued or seasonal.
The price to be reduced is known as the regular selling price, S, or list price (price before discount/markdown). The reduced price can be referred to as the sale price or clearance price, \(S_R \).
Using this relation, a Markdown can be calculated as the difference between regular selling price and the sale price.
SALE PRICE = REGULAR SELLING PRICE - MARKDOWN
\[S_R = S - MD \]
The rate of markdown, d, or markdown rate is the relationship between the amount of the markdown and the regular selling price, and is stated as a percent of the regular selling price.
RATE of MARKDOWN = MARKDOWN/REGULAR SELLING PRICE
\[d = \frac{MD}{S} \times 100 \]
Since the rate of markdown is a percentage of markdown and regular selling price. The sale price can be expressed as a percentage of the regular selling price as well.
SALE PRICE = REGULAR SELLING PRICE (1 - rate of markdown)
\[S_R = S(1-d) \]
Example
An equipment company paid $332.79 for a tent. Overhead is 23% of the regular selling price and profit is 17% of the regular selling price. During the clearance sale, the tent was sold at a markdown of 30%. What was the operating profit or loss on the sale?
Solution
See the video below for the solution
