Mat 145

case study # 5: markup / markdown

show all your work for full credit; explanations must be in paragraph form.

answers must be rounded to the nearest hundredth.

rei is a ccoperative that focuses on the great out-of-doors. although anyone can shop at rei, the firm is owned by the members who pay a one-time fee of $20 and receive annual dividends based on company profit and the amount of each member’s annual purchases.

a marketing manager was interested in a new line of off-piste skis for skiing over rugged terrain and jumping off cliffs. the manager works with james smelter in inventory to place the following orders for two different skis.

orders model name number total cost

1st order steep alpine 15 pairs $4395

2nd order cliff hoppers 22 pairs $7194

1. find the cost per pair of skis for both models.

orders model name number total cost cost per pair of skis

1st order steep alpine 15 pairs $4395 293

2nd order cliff hoppers 22 pairs $7194 327

cost per pair of skis = total cost / number of pairs

steep alpine= $4395 / 15 cliff hoppers = $7194/22

steep alpines= $293 cliff hoppers = $327

2. if the markup on cost for each pair of skis is 38%, find the list price for each.

orders model name number total cost cost per pair of skis

1st order steep alpine 15 pairs $4395 293

2nd order cliff hoppers 22 pairs $7194 327

markup percentage in decimal = 38% / 100 markup in decimal format= 0.38

list price per pair = cost price + (cost price * markup percentage)

steep alpine = 293+(293*0.38) cliff hoppers = 327 +(327*0.38)

steep alpine = 293+111.34 cliff hoppers = 327+124.26

steep alpine= 404.34 cliff hoppers = 451.26

3. the skis were received on january 1 and a physical inventory at the end of january showed that 7 pairs of step alpine and 14 pairs of cliff hoppers remained. find the average inventory at cost.

orders model name number cost per pair of skis total

cost

1st order steep alpine 7 pairs 293 $2,051

2nd order cliff hoppers 14 pairs 327 $4,578

total value of inventory $6,629

total cost = number of skis * cost per pair of skis

total cost = 7*293 total cost = 14*327

total cost= 2,051 total cost = 4,578

total value of inventory = steep alpine total cost + cliff hoppers total cost

total value of inventory= $2,051 + $4,578

total value of inventory = $6,629

4. use the data for these skis to find the turnover at cost for the month of january.

orders model name number cost per pair of skis total cost

1st order steep alpine 15 pairs 293 $4,395

2nd order cliff hoppers 22 pairs 327 $7,194

total purchase $11,589

turnover at cost = cost of goods sold / average inventory at cost

turnover at cost = $11,589 / $6,629

turnover at cost = 1.75

5. the two managers are not happy with the quality of the skis and sell the remaining skis at a markdown of 40%. find the price per pair of skis after being marked down.

orders model name number list price per pair

1st order steep alpine 7 pairs $404.34

2nd order cliff hoppers 14 pairs $451.26

markdown percentage in decimal = 40% / 100 markup in decimal format= 0.40

new price for each model= list price – markdown percentage * list price

steep alpine new price= $404.34 – 0.40 *$404.34

steep alpine new price= $404.34 - $161.74

steep alpine new price= $242.60

cliff hoppers new price= $451.26 – 0.40 * $451.26

cliff hoppers new price= $451.26 - $180.50

cliff hoppers new price= $270.76

6. assume that operating expenses at rei are 22% of cost and determine the amount of any profit on these skis. if there was no profit, find the amount of the operating loss/or the absolute loss.

orders model name number cost per pair of skis total cost list price balance of markdown price

1st order steep alpine 15 pairs 293 $4,395 $404.34 7

2nd order cliff hoppers 22 pairs 327 $7,194 $451.26 14

$11,589

operating expenses percentage in decimal = 22% / 100 operating expenses percentage in decimal format= 0.22

total operating cost= total cost * operating expenses percentage

total operating cost = $11,589 * 0.22

total operating cost = $2,549.58

7. do you think firms often lose money on new products? what do you think would happen to a company that often loses money on new products? explain.