Retailing

Retail Math
for retailer decision making

Vinuniversity
Kyunghwa Chung (kyunghwa.c@vinuni.edu.vn)
Retail

Margin
Gross Margin = Net Sales – Cost of Merchandise Sold (Cost of Goods Sold)
Net Sales = Gross Sales – Customer Returns and Allowance
when customers returns and allowances are expressed as a percent,
the percent is based on gross sales.

Problem 1
Net sales of a department were $128,644.
Customer returns and allowances amounted to $6,846.
What is the percent of returns and allowances?
- Gross sales = Net sales + Customers returns and allowances = $128,644 + $6,846 = $135,490
- Percent of Returns and Allowances = Returns and Allowances / Gross Sale = 6,846 / 135,490 = 5.05%

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Margin
Gross Margin (in absolute term) = Net Sales – COGS
Gross Margin (in %) = (Net Sales – COGS)/Net Sales x100

Problem 2
Vincom recorded gross sales of $2,500,600.
Customer returns and allowances amounted to $56,358.
Cost of merchandise sold was $1,500,000.
What is the gross margin in dollars and percent?
- Net sales = Gross sales - Returns and Allowances = $2,500,600 - $56,358 = $2,444,242
- Gross margin = Net sales - COGS = $2,444,242 - $1,500,000 = $944,242
- Gross margin (%) = $944,242 / $2,444,242 x 100 = 38.63 %

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Problem 3
Last year, sales of Fresh garden store in the Vinuni campus was $53,568.
During the period, customer returns were $430.
Cost of merchandise sold was $36,000.
What is the gross margin in dollars and percent?

- Net sales = Gross sales - Returns and Allowances = $53,568 - $430 = $53,130
- Gross margin = Net sales - COGS = $53,130 - $36,000 = $17,130
- Gross margin (%) = $17,130 / $53,130 x 100 = 32.24%

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Problem 4

Sales Person Gross Sales Customer Returns

Hien 1,441 509
Linh 1,098 76
Dung 934 98
Diep 734 46

In the Fresh Farm retail store, 4 salesperson are working.

The manager has to choose a staff who will win the best salesperson award.
Based on the given data, who should be the winner?

- Hien's Net Sales = Gross sales - Returns = 1,441 - 509 = 932

- Linh's Net Sales = Gross sales - Returns = 1,098 - 76 = 1022
- Dung's Net Sales = Gross sales - Returns = 934 - 98 = 836
- Diep's Net Sales = Gross sales - Returns = 734 - 46 = 688

 Therefore, the winner should be Linh

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Retail

Problem 5
Sales Person Gross Sales Customer Returns Cost of Goods Sold
Hien 1,441 509 500
Linh 1,098 76 650
Dung 934 98 90
Diep 734 46 200

Based on the new data, who should be the winner?

Gross margin ($) Gross margin (%)

Hien 932 - 500 = 432 46,352

Linh 1022 - 650 = 372 36.399

Dung 836 - 90 = 746 89.234

Hiep 688 - 200 = 488 70.930

 Based on this new data, the winner should be Dung

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Retail

Problem 6
Customers returns and allowances were 12.5% in the sportwear department.
How much were gross sales if net sales totaled $438,418.
Net sale = Gross Sales - Returns and allowances = Gross Sales - Gross Sales x Percent of returns
→ $438,418 = Gross Sale x (1 - 0.125) → gross sale = $438,418 : 0.875 = 501,049.143

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Retail

Skeletal Statement
Shows the calculation and structure of gross sales, net sales, profit, cost
of goods sold, etc.

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Problem 7
Fill the below skeletal statement, given:
Gross sales $680,366
Gross margin 271,251
Customer return 9.80 %
Expenses 41.70 %

Gross Sales $ 680,366

Customer Returns $ 66,675.87 9.8 %
Net Sales $ 613,690.13 100%
Cost of Goods Sold - $ 342,439.13 -55.8%
Gross Margin $ 271,251 44.2%
Expenses - $255,908.78 -41.7 %
Operating Profit $15,342.22 2.5%

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Retail

Operating Expenses
Expenses include wages for selling and non-selling employees, management salaries,
utilities, advertising, supplies, fixtures, taxes, insurance, bad debts, buyer’s travel, and
so forth.
There are many ways of classifying expenses. The expense classification system used
will depend on the purpose for which expenses are being analyzed.

Direct expenses: the result of the operation of one specific department and would n
ot occur if the department were eliminated. (salaries of sales personnel, department
advertising, selling supplies and buyers’ travel, etc.)

Indirect expenses: benefit the store as a whole and would continue even if a particu
lar department were discontinued. (store maintenance, insurance, salaries of senior e
xecutives, and institutional advertising, etc.)

Contribution Margin https://www.careerprinciples.com/resources/contribution-margin-ratio

Contribution Margin = Net Sales – Direct (Variable) Expenses

Contribution or controllable margin: the amount left after direct expenses are subtracted from Net sales.
The amount the department contributes to the indirect expenses, fixed costs, and profit.

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Problem 8
Calculate the contribution percent and profit in percent and dollars for a
department with the following figures:

Dollars
Given: Net sales 368,430
Cost of merchandise sold 196,005
Direct expenses
• Wages 49,264
• Department advertising 12,316
• Wrapping supplies 3,315
• Buyers’ travel 4,842
• Other 6,790
Indirect expenses 77,740

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Retail

- Contribution percent: [ (368,430-196,005)/368,430 ] x 100 = 46.8%

- Profit in dollars = Net Sales−Cost of Merchandise Sold−Direct Expenses−Indirect Expenses = 368,430 – 196,005 - 77,740= 94,685

- Profit in percent: (Profit in dollars/Net sales) x 100 = (94,685/368,430) x 100 = 25.7%

Problem 9

Calculate (a) contribution and (b) profit or loss percent for the sporting
goods department.

Dollars
Net sales 568,320
Cost of merchandise sold 280,774
Direct expenses 145,490
Indirect expenses 121,621

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a) Contribution = Net sales - Direct Expense = 568,320 - 145,490 = 422,830

b) Profit or loss: (568,320-280,774-145,490-121,621)/568,320 = 3.59%

Problem 10
Calculate (a) contribution and (b) profit or loss percent.

Dollars
Cost of merchandise sold 389,615
Gross margin 353,925
Direct expenses 195,923
Indirect expenses 129,376

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- Net sales = Gross Margin + Cost of Merchandise = 353,925 + 389,615 = 743,540
- Contribution = Net sales − Direct Expenses = 743,540− 195,923 = 547,617
- Profit or Loss=353,925−195,923−129,376=28,626
- Profit or loss percent: (28,626/353,925) x 100 = 8.1%

Expense Control
Selling cost percent = Gross Wages / Net Sales x 100

Measure of Profitability
Sales per square foot = Net sales / Square feet of selling space

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Problem 11
A salesperson who worked 40 hours per week received a wage of $4.85 per
hour. If she sold $1,986, what was her selling cost percent per week?
Selling cost percent = Gross Wages / Net Sales x 100 = (40 x $4.85)/$1,986 x 100 = 9.77%

Problem 12
A store currently pays all employees $4.35 per hour. For the week they have
scheduled 164 hours of sales help. The store desires to maintain the same
selling cost percent when minimum wages goes to $4.85. how many hours
of sales assistance can they allow and still maintain the same selling cost?
Selling cost percent = Gross Wages / Net Sales x 100 = ($4.35 x 164)/Net Sales x
100
Maintain the same selling cost: ($4.35 x 164) = ($4.85 x Hours)
 Hours of sales assistance: 147.09

Problem 13
Last year the store had two salespeople who worked 40 hours per week for
$4.50 per hour and three salespeople who worked 28 hours per week for
$4.65 per hour. Wages for all salespeople will be increased, but hours will be
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reduced so selling cost will remain the same. The two people earning $.4.50
will receive $4.75 but will work only 37.5 hours per week. The remaining
hours will be split evenly among the three part-time employees.
The part-time salespeople will be paid $4.85. How many hours per week can
each part-time salesperson work?
- If total cost of labor for the part-time salespeople remain the same, set x as the number of hours per week each part-time salesperson can
work:

3 * 28 * 4.65 = 3 * x * 4.85
 X = 26.71 hours.
 Therefore, each part-time salesperson can work 26.71 hours per week.

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Retail

Quantity discount
Quantity discounts are discounts allowed when a large specified quantity is
purchased. The amount of discount usually increases as the quantity purchase
d increases.

Trade discount
Trade discounts are a percent deducted from a list price of the manufacturer
or supplier. List price is referred to as the manufacturer’s suggested retail price.
The net price represents the resultant figure after applying the trade discounts
to the last price.
List price may but does not have to be the same as the retail price. List price
may be set higher than the typical retail price to make customers think they
are receiving a special value.

Cash discounts
Cash discounts are a percent reduction from quoted cost allowed for prompt
payment of the invoice.

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Example
The billed cost of a vacuum cleaner that has a list price of $200 with 2 times of
discounts of 40% and 15%.

$200 - $80 = $120

$120 - $18 = $102, billed cost

Example
The list price of a bottle of shampoo is $2.00 (per unit) with 2 times of discounts
30% and 20%. A 3% cash discount may be taken if paid within 10 days. What is
the amount to be paid on an order for 5 dozen bottles when the cash discount
is taken? (5 dozen is equivalent to 60 units)

60 x $2.00 = $120
$200 less 30% = $84
$84 less 20% = $67.20, billed cost
$67.2 less 3% = $65.18, amount due

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Retail

Allowances
An allowances from a vendor is provided as compensation to the store for some
specific purpose such as advertising, display, and markdown. An allowance may
be granted as a percent of the cost of the merchandise, but it is more common
for an allowance to be granted as a specific dollar amount, specific amount per
unit purchased, or percent of service provided.

Most stores use an allowance to reduce the cost of the service rather than
reduce the cot of the merchandise. For example, an advertising allowance would
offset the cost of time or space used for the advertisement.

Rebate
An adjustment in the cost of merchandise.
Rebate refers to a refund of part of the cost of the merchandise.
Supplier offers retailers a monetary reward for reaching designated goals.

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Retail

Problem 14
The carpet buyer placed an order for 1,260 square yards of carpet at $11.90
per square yard. A cash discount is taken according to the following discount
rule of the vendor. How much will be paid to the vendor?
Quantity (yards) Discount (%)
500 – 1,000 0.75
1,001 – 1,800 1.25
1,801 – 2,500 1.75
Over 2,500 2.00
- Total cost of the carpet before the discount: 1,260 square yards * $11.90/square yard = $14,994.
 The cash discount percentage is 1.25% because the quantity ordered is over 1,260 yards.
- The total cost of the carpet after the discount: $14,994 - ($14,994 * 1.25%) = $14,806.57.
 Therefore, the amount to be paid to the vendor is $14,806.57.

Problem 15
A manufacturer offers the buyer a line of carved wooden items that have 2 ti
mes of trade discounts of 30% and 20%. The buyer orders merchandise that
has a total list price of $978. If a 2% cash discount is taken on this order,
what will be the amount remitted?
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- Net price after both trade discounts = $978 - ($978 x 30%) = $684.6 - ($684.6 x 20%) = $547.68
 The amount remitted for the order = $547.68 - ($547.68 x 2%) = $536.73

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Retail

Markup
Markup = Retail Price - Cost
Markup percent based on retail price = Dollar Markup / Dollar Retail Price x 100
Markup percent based on cost = Dollar Markup / Dollar Cost x 100

Examples
Markup percent (based on retail) for a dress that costs $40.00
and retails for $80.00 -> 50%

A man’s suit retails for $210 and costs $120.

Markup percent based on cost -> 90/120 x 100 = 75%

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Retail

Averaging Markup
An averaging markup is determined by working with total cost and total retail.

Problem 16
A buyer for children’s department needs $12,000 worth of merchandise at
retail for the month. She has purchased 200 dresses that cost $20.00 each and
will retail for $30.00 each. What markup percent must she obtain on the
remaining purchases in order to average a 40% markup (retail base)
for the month?
- Total needs at cost = $Retail * Cost% = $12,000 * (100% - 40%) = $12,000 * 60% = $7,200
- Retail value of purchases = 200 * $30 = $6,000
- Cost value of purchases= 200 * $20 = $4,000
- Retail Balance = Total Retail - Retail of Dresses Purchased = $12,000 - $6,000 = $6,000
- Cost Balance = Total Cost - Cost of Dresses Purchased = $7,200 - $4,000 = $3,200
- Markup percent = (Retail Balance - Cost Balance)/Retail Balance = ($6,000 - $3,200)/$6,000 = 46.67%

Problem 17
A buyer for children’s department plans to purchase about $3,800 (retail) worth
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of sweater for an Anniversary sale. Since this is a special event, she will
operate with a 42.5% markup. Her first purchase is for 6 dozen sweaters
costing $14.60 each that she plans to retail for $24.90 each. What markup
percent must be obtained on the balance of sweaters in order to average a
42.5% markup (retail base)?
- Total Cost = $Retail * Cost% = $3,800 * (100% - 42.5%) = $2,185
- 6 dozen = 72 units

 Cost = 72 * $14.60 each = $1,051.20

- Retail value of purchases = 72 * $24.90 each = $1,792.80
- Retail Balance = Total Retail - Retail of Sweaters Purchased = $3,800.00 - $1,792.80 = $2,007.20
- Cost Balance = Total Cost - Cost of Sweaters Purchased = $2,185 - $1,051.20 = $1,133.80
- Markup percent = Markup $ on Balance/$ Retail Balance = ($2,007.20 - $1,133.80)/$2,007.20 = 43.51%

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Problem 18
A buyer plans to purchase 300 pairs of slacks for an Anniversary sale to retail
for $26.00 each. He has placed an order for 170 pairs at $12.00 each (cost).
What is the most he can pay for each remaining pair of slacks if he is to
achieve the department’s markup goal of 52% (retail base)?
- Total retail: 300 * $26 = $7,800
- Total cost: Cost = $Retail * Cost% = $7,800 * (100% - 52%) = $3,744
- Cost of slacks purchased: 170 * $12 = $2,040
- Balance that can be spent on slacks = Total Cost - Cost of Slacks Purchased = $3,744 - $2,040 = $1,704
- Number of slacks still needed = 300 - 170 = 130
- Unit Cost = Cost Balance/Number of Slacks Still Needed = $1,704.00 , 130 = $13.11 each

Problem 19
A sportwear buyer needs to average a 48% markup. He needs 120 skirts to
retail at $21.00 each and 80 jackets to retail at $38.00 each. If he pays $20.00
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for each jacket, how much can he pay for each skirt in order to achieve his
planned markup percent (retail base)?
- Total retail for the merchandise:
Jackets: 80 * $38 = $3,040
Skirts: 120 * $21 = $2,520
 $5,560 total retail needed
- Total cost for the merchandise:
Cost = $ Retail * Cost%
= $5,560 * (100% - 48%)
= $5,560 * 52%
= $2,891.20
- Cost of the jackets purchased:
80 * $20 = $1,600 cost
- Balance cost that can be spent on skirts:
Total Cost - Cost of Jackets = Cost of Skirts
$2,891.20 - $1,600 = $1,291.20
- Unit cost of each skirt:
Cost Balance/ Number of Skirts to be Purchased = Unit Cost
$1,291.20/ 120 = $10.76 unit cost

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Problem 20
A buyer for the men’s department purchased a group of shirts that consists of
10 shirts at $11.00 each, 20 shirts at $12.00 each, and 12 shirts at $14.00 each.
He plans to sell all shirts at same price. What unit retail price will result in a 49
% markup?
- Total cost:
10 * $11 = $110
20 * $12 = $240
12 * $14 = $168
=> $518 total cost
- Total retail needed to obtain a 49% markup:
Retail = $Cost/ Cost%
= $518.00/ 51%
= $1015.6863
- Retail for each shirt:
Retail per Shirt = Total Retail/ Number of Shirts
= $1015.6863/ 42 = $24.183

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Problem 21
A sportwear buyer purchased 30 corduroy jackets that cost $34.75 each and 48
tweed jackets that cost $39.75 each. She wants a 47.5% overall markup. If she
retails the corduroy jackets for $60.00 each jacket, what must the average retail
price be for each tweed jacket in order to achieve the planned markup percent?
- Total cost:
30 * $34.75 = $1,042.50
48 * $39.75 = $1,908.00
=> $2,950.50 total cost
- Total retail needed to obtain a 47.5% markup:
Retail = $ Cost/ Cost%
= $2,950.50/ 52.5%
= $5620
- Retail contributed by corduroy jackets:
30 * $60 each = $1,800
- Retail needed for tweed jackets:
Retail for Tweed = Total Retail - Retail of Corduroy
= $5620- $1,800
= $3820
- Retail for each tweed jacket:
Retail for Each = Total Retail/ Number of Tweed Jackets
= $3820/ 48
= $79.583
 Each tweed jacket should retail for at least $79.583 in order to achieve a 47.5% average markup.

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Problem 22
A buyer plans to purchase 400 skirts that will retail for $20.00 each.
She has placed an order for 320 skirts at $10.50 each (cost).
What is the most she can pay for each of the remaining skirts if she is to
achieve the department’s markup goal of 48%?
- Total retail for the skirts:
400 * $20 = $8000
- Total cost for the skirts:
Cost = $ Retail * Cost%
= $8000 * (100% - 48%)
= $8000 * 52%
= $4160
- Cost of the Skirts Ordered:
320 * $10.5 = $3360 cost
- Balance cost that can be spent on the remaining skirts:
Total Cost - Cost of Skirts Ordered = Cost of Remaining Skirts
$4160 - $3360 = $800
- Unit cost of each skirt:
Cost Balance/ Number of Skirts to be Purchased = Unit Cost

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$800/(400-320) = $10 unit cost

Problem 23
A buyer purchased the following items at a manufacturer’s closeout sale:
10 swimsuits at $18.00
15 swimsuits at $15.00
25 swimsuits at $14.00
30 swimsuits at $17.00
All swimsuit are to be retailed at the same price. What retail price will result in
a 52% markup?
- Total cost:
10 * $18 + 15 * $15 + 25 * $14 + 30 * $17 = $1265
- Total retail needed to obtain a 52% markup:
Retail = $ Cost/ Cost%
= $1265/ 48%
= $2635.417
- Retail for each swimsuit:
Retail for Each = Total Retail/ Number of Swimsuits
= $2635.417/ 80
= $32.943

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Problem 24
A buyer for children’s wear needs to purchase merchandise with a cost of
$10,000. She has purchased children sportwear costing $8,000 that will retail
for $14,000. If she is to achieve a 51.5% markup goal, what markup percent
must be obtained on the remainder of the goods?
- Total retail needed to obtain a 51.5% markup:
Retail = $ Cost/ Cost%
= $10000/ 48.5%
= $20618.557
- Cost of the remainder of the goods:
Cost of Remainder of Goods = Total Cost - Cost of Children Sportwear
= $10000- $8000
= $2000
- Retail needed for the remainder of the goods:
Retail for Remainder of Goods = Total Retail - Retail of Children Sportwear
= $20618.557- $14000
= $6618.557
- Markup percent needed for the remainder of the goods: ($6618.557 - $2000)/ $6618.557 * 100% =69,78%

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Problem 25
A buyer plans to purchase children’s shoes that cost $6,000.00. He has
purchased shoes that cost $2,100.00 and will retail for $3,800.00. What mark
up percent should the buyer obtain on the balance of his purchases in order
to obtain a markup of 48%?
- Total retail: $6,000/(100%-48%)= $11,538.46
- Cost balance: $6000-$2100=$3900

Problem 26
A buyer needs to purchase 200 scarves to sell for $15.00 each. he has
ordered 140 scarves at $8.00 each (cost). What should he pay for each of
the remaining scarves in order to obtain an average markup of 44%?
- Total retail = 200 * $15 = $3,000
- Total Cost = $Retail * Cost% = $3,000 * (100%-44%) = $1,680
- Cost of scarves purchased = 140 * $8 = $1,220
- Balance that can be spent of scarves:
- Total cost - Cost of scarves purchased = $1,680 - $1,220 = $560
- Scarves remained to be purchased = 200 - 140 = 60
- Unit cost = Cost balance / Scarves remained to be purchased = $560 / 60 = $9.33
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Initial Markup
The difference between billed cost of merchandise and the original retail
price placed on an item or group of items.

Retail Reductions
Markdowns, employee discount, and shortages reduce the sales that can
be realized from an assortment of merchandise.

Initial markup percent

+ + + − ℎ
=
+

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Problem 27
What should be the initial markup percent in a department having
the following figures?

Dollars
Net sales 170,000
Profit 6,000
Expenses 70,000
Employee discounts (included in reductions) 400
Markdowns (included in reductions) 5,200
Shortages (included in reductions) 600

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- Reductions = Employee Discount + Markdowns + Shortages = $400 + $5,200 + $600 = $6,200
- Initial markup % = (�������� + ������ + ���������� + ����������� − ���ℎ ���������)/(��� ����� + ����������)= 46.65%

Problem 28
Determine the necessary initial markup percent for a department having these
planned figures.

Dollars
Net sales 100,000
Expenses 35,000
Reductions 10,000
Alteration Costs 900
Cash discounts 750
Profit 5,000

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When information is given by %, % numbers are used.

- Initial markup % = (�������� + ������ + ���������� + ����������� − ���ℎ ���������)/(��� ����� + ����������)= 45.59%

Problem 29
Determine the initial markup percent that will be required to achieve a 4%
profit, using the following figures. (Net Sales = 100%)

Percent
Expenses 39.1
Employee discounts 6.8
Markdowns 4.2
Shortages 1.0
Alterations 0.5
Cash discounts 0.6

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- Reductions = Employee Discount + Markdowns + Shortages = = 6.8% + 4.2% + 1% = 12%

- Initial markup % = (�������� + ������ + ���������� + ����������� − ���ℎ ���������)/(��� ����� + ����������) = 49.11 %

Cumulative Markup Percent

Example
The shoe department showed an opening inventory of $80,000 at retail with
a markup pf 48%. During the month, purchases were received in the amount
of $30,000 at cost that were marked up 52%. Find the cumulative markup
percent for the department.

Opening inventory Purchase Total handled

Retail 80,000 62,500 142,500
Cost 41,600 30,000 71,600
Markup 48% 52% 49.75%

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Problem 30
The home appliance department showed an opening inventory of $100,000
at retail with a markup pf 39%. During the month, purchases were received
in the amount of $195,000 at cost that were marked up 35%. Find the
cumulative markup percent for the department.
- Retail value of purchases = $195,000 / (100%-35%) = $300,000
- Total Retail Value = $100,000 + $300,000 = $400,000
- Total Cost Value = $61,000 + $195,000 = $256,000
- Markup % on the total goods:
- Markup in $ = $400,000 - $256,000 = $144,000
- Markup in % = $144,000 / $400,000 * 100% = 36%

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