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# Class Note for AMT 318 at WSU 03

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This 24 page Class Notes was uploaded by an elite notetaker on Friday February 6, 2015. The Class Notes belongs to a course at Washington State University taught by a professor in Fall. Since its upload, it has received 16 views.

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Date Created: 02/06/15

g Making a Profit Initial Markup Maintained Markup Gross Margin Initial Markup The difference between the FIRST markup placed on an item and the cost of the item Also called mark on or original markup During the time that an item is in inventory the markup may fluctuate Maintained markup Calculating Cost Cash discounts Discounts given to the retailer for prompt or advance payment Two different ways Include cash discounts as part of COG Do not include cash discounts as part of COG Transportation Both methods include transportation Transportation is the cost of having the goods delivered Some retailers will put transportation freight as an expense category and not allocate it to the COG Transportation is negotiable with vendors at sale Will discuss in greater detail in the next chapter Which Method It depends on the bookkeeping method of that retailer Initial Markup Formula Initial Markup First Retail Cost HOWEVER The de nition of COST leads to different methods of nding I MU IMU with Cash discounts INCLUDED in the Cost Cash Discounts are deducted from the invoice cost What is an invoice Initial MU Retail Cost Cash Discounts Transport Example A piece of ornamental jewelry with an invoice of 150 arrived at Ultra Imports on September 1 Transportation costs were 280 and the cash discount was 450 but only if the bill was paid within 10 days The bill was paid in full on September 6 The jewelry was marked for retail at a total of 300 What was the initial dollar markup Solution 4 What if a figure is required Remember the formula for MU when retail and MU are known Initial MU Initial MU Or1g1nalReta11 leO Solution IMU when Cash Discounts are considered additional income In this method Cash discounts are not deducted from the invoice cost Initial MU Retai Cost Transpont Example Consider the previous problem The dollar retail on the ornamental jewelry was 30000 the dollar cost was 15000 and the transportation charges were 280 What is the initial dollar markup if cash discounts are considered as additional income Solution If a is desired Which Method Depends on the retailer Included in cost A truer picture of the COG As additional income Buyer verses bookkeeper responsibilities More stable markups Discounts will cause MU to fluctuate Higher retail prices Marking up off a higher cost IMU in Terms of Other Percentages Why do we use percentages To make Comparisons Initial markup can be expressed in terms of other percentages We look at operating expenses operating profit reductions and alteration expenses 4 All the percentages are based on net sales Example What percentage of net sales for the period will be used for operating expenses For a more detailed explanation of the formula refer to page 53 Formula Reductions are all things that reduce net sales Discounts markdowns and shortages Initial MU Oper EXpOper Pro tRedAlter EXp 1000 100Red J 0 Example The children s depaitment plans to use the following figures to calculate the initial markup percentage for the Christmas season Oper Exp 38 Employee Dis 3 Oper Profit 3 Markdowns 5 Alt Exp 1 Shortages 2 Find the initial markup percentage Solution 4 Step 2 Find the Initial Markup Maintained Markup The difference between the retail price at which the goods were sold net sales and the cost of the merchandise What causes IMU to become MMU Additional Markups Markdowns Employee Discounts Shortages 4 This number can only be ascertained after the goods have sold MMU is the markup obtained over time A more accurate reflection of business performance Planning vs Actual IMU is used as a planning tool MMU is the sales that were actually attained not those that are planned MMU is the measure used to judge a buyers performance Formula Maintained MU Net Sales Cost Example A housewares buyer bought 4 dozen mixers for a total of 89856 and retailed them for 36 each At the end of the season 4 of the mixers remained These mixers were marked down and finally sold for 15 each What was the maintained markup percentage Solution Step 1 Find net sales i Step 2 Find the Maintained Dollar Markup 4 Step 3 Find the Maintained Markup Percentage MMU in terms of other percentages Similar concept to finding IMU in terms of other percentages See page 5960 for a detailed explanation of how the formula is denved 4 Can find MMU if you know IMU reductions and transportation percentages Remember reductions represent decreases in the selling price Formula MMU Init MUW 1000 Red Trans 0 Example The initial markup percentage in the hosiery depaitment is 39 with employee discounts of 1 and markdowns of 6 What is the maintained markup percentage Solution Step 1 Find the reduction percentage 4 Step 2 Find the MMU Gross Margin A determinant of the health of a department store line etc Must be large enough to cover expenses and provide a profit Can be thought of as net sales minus the COGS May also be thought of as the sum of operating profit and operating expenses 4 Sometimes termed gross profit Misleading Assume a profit Assumes GM is larger than Operating expenses Typically looked at as a percentage After GM dollars are calculated a is figured Can find GM by adjusting MMU Formula GMMaint MU Cash Disc Earned A1t Exp Example Gates Store has recorded the following figures for the season This store always includes cash discounts as part of the cost of the merchandise Net Sales 150000 Invoice Cost 90000 Transportation 1300 Cash Disc 2700 Alteration Exp 3000 Find the Dollar Gross Margin Solution Step 1 Find the maintained dollar markup Step 2 Find the Dollar Gross Margin Remember cash discounts have already been included J Step 3 Find the GM Finding GM in terms of other percentages GM MMU Cash Disc Alt Exp Example Men s furnishings has an initial markup of 38 employee discounts of 2 markdowns of 6 cash discounts equal to 2 and alteration expenses amounting to 1 of the net sales What is the gross margin percentage Solution Step 1 find the reduction percentage J Step 2 Find the MMU 4 Step 3 Find GM

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