Cost Price, Sales Price, Mark-Up

Q: How do you find the cost price if the sales are $216,000 and the mark-up is 50%?



A: "Mark-up" literally means the amount you "mark up" the cost by. This means the amount you increase the cost by to get to the selling price, and is expressed as a percentage of the cost.

Cost Sales Price Mark-up"Mark-up" is basically another way of saying the profit - the difference between the sales price and the cost - but specifically referring to the cost as the starting point or basis of the calculation.

In this example the profit (mark-up) is 50% of the cost price. For the purpose of our calculation, the cost will amount to 100% since it is our starting point or basis.

If we put all this into an equation this simplifies to:

Mark-up / Cost = 50/100

Now let's substitute that first equation above into a general equation for sales, cost and mark-up:

Selling price = Cost + Mark-up (profit)
Selling price = 100% + 50%
Selling price = 150%

In other words, the selling price is 150% of the cost (100%).

Therefore:
Cost = 100/150 X Selling price
= 100/150 x $216,000
= $144,000


Hope that question and solution helps you better understand the differences between cost price, sales price and mark-up.

Check out the comments below for more questions on sales, cost price and mark-up with accompanying solutions.

Best,
Michael Celender
Founder of Accounting Basics for Students


Accounting Basics book series



Related tutorials:
For more free questions check out our page of Full Accounting Questions and Answers

Comments for Cost Price, Sales Price, Mark-Up

Click here to add your own comments

Cost price
by: Anonymous

What does it mean when they say all cost of sales are recognized at 25% of the sales price. What is the cost price and mark up?
Assume VAT is 15%
by: Anonymous

A business applies a consistent mark-up of 25% on cost. On 15 March 2020 the owner of the business takes some inventory for personal use. The inventory has marked selling price 6670.

Cr Inventory? Dr Drawings? VAT?
Extremely helpful content
by: OptimisticWriter

Was extremely helpful. I finally understand the calculations. Thanks!

You're welcome! Thanks a lot for the positive feedback!

- MC (founder/editor)
Calculate Value of Inventory
by: Anonymous

How to calculate trading inventory with selling price (mark-up) of R18,577 that was sold on credit. The mark-up on the inventory was 55% of selling price (i.e. the gross margins is 55%).

It sounds like R18,577 is the credit sales. The mark-up is based on the selling price. We need the value of the inventory at cost.

Gross Profit = 55/100 x 18,577
And cost = 45/100 x 18,577
= R8,360

Hope that helps! If anyone else has a better solution please add a comment.

Best,
Michael C.
Accounting Basics for Students
Gross Profit Percentage, Sales, Trade Discount Question
by: Anonymous

Sales was given as 4,741,600,
The business prices it goods at mark-up of 70% on cost. Trade discount of 297,200 was disallowed on invoices to certain customers.

Don’t understand how to resolve this...


I'm assuming here we need to calculate the Cost of Goods Sold figure or the Profit figure. To do this we need the Sales figure and then we use the 70% mark-up to calculate the rest.

Here's my understanding and answer:

First of all, trade discount is a discount taken off the sales usually, it's a general discount given by one business to another and not recorded in the books. You take sales and minus trade discount to get the actual sales figure.

To me it sounds like the trade discounts of 297,200 were used to get the sales figure of 4,741,600 (X full sales figure - 297,200 = 4,741,600 actual sales). But then after calculating like this, for some reason these discounts were disallowed.

So we need to figure out the corrected amount of sales by adding back the trade discount amount:
= 4,741,600 + 297,200
= 5,038,800

Now, mark-up of 70% is based on the cost of sales and profit figure and means:
70/100 = Mark-up (Profit) / Cost of Sales

Selling price = cost + profit (mark-up)
Selling price = 100% + 70%
Selling price = 170% of Cost

Swapping the above around we get:

Cost = Selling Price / 170%
= 5,038,800 / 170%
= 2,964,000 Cost of Sales

Profit = Sales - Cost of Sales
= 5,038,800 - 2,964,000
= 2,074,800 Profit

Hope that makes sense!

Best,
Michael Celender
Founder of Accounting Basics for Students
Mark-Up Equation with VAT Inclusive
by: Sebastian

Hi there.
I am troubled with this question here.
"Gromit Dealers sells merchandise for R6325 (15% VAT inclusion) to a client. The markup on selling price is 25%. What is the cost price of the merchandise?"

I've tried every way possible, to my understanding, to try and figure this out.

Does the VAT affect the calculation or not?
What is the answer?

Hi Sebastian and thanks for your question.

Yes, the VAT affects the calculation.

The way I would go about this is actually to remove the VAT first, since the cost and sales accounts always exclude VAT. The calculation of mark-up is always based on accounts without VAT (cost and sales accounts). So let's remove the VAT first:

R6,325 x 100/115 = R5,500

So the sales (VAT excluded) is R5,500.

Now let's use our cost, mark-up and sales equation to get the answer:

Cost + Mark-Up = Sales
Cost + [(25/100) x Cost] = Sales
[(100/100) x Cost] + [(25/100) x Cost] = Sales
[(125/100) x Cost] = R5,500
Cost = R5,500 / (125/100)
= R4,400

So the cost price of the merchandise is R4,400.

Hope that explains things and that this is the same as the answer they provided in your studies.

Best,
Michael C.
Founder of Accounting Basics for Students
Mark-up of 120%
by: Anonymous

If I have a selling price of $25 and a mark up of 120%, what would the cost price be?

As mentioned, when we're dealing with "mark-up" we're using the cost price as our base - so the cost price is the 100% and the mark-up is based on this.

What makes this particular question pretty tricky is that the mark-up, meaning the increase from cost price to selling price, is very high - above 100%. Usually the mark-up is below 100% - for example, 20% or 30%.

The mark-up of 120% means the increase to get the selling price is equal to 120/100 of the cost. In other words, the increase ("mark-up") is even greater than the cost itself!

The selling price is equal to the cost price plus the mark-up. In this example, the selling price is 100% + 120% = 220% of the cost price.

Cost price = 100/220 x selling price
= 100/220 x $25
= $11.36

So the cost was $11.36, the increase (mark-up) was $13.64, bringing our selling price to $25.

Hope that has helped simplify things a bit!

Best,
Michael Celender
Founder of accounting-basics-for-students.com
Confused
by: Anonymous

My selling price is $168.75 and the mark up is 25% so what is my cost?

Remember that when we're dealing with "mark-up," this means we're using the cost as our base and the cost price is thus 100%. The mark-up of 25% means the increase to get the selling price is equal to 25/100 of the cost or 25%.

The selling price is equal to the cost price plus the mark-up. In this example, the selling price is 100% + 25% = 125% of the cost.

Cost price = 100/125 x selling price
= 100/125 x $168.75
= $135

Best,
Michael Celender
Founder of accounting-basics-for-students.com
Mark-Up Question: Calculate the Cost Price and Selling Price
by: Anonymous

If I have a profit of R700 and a mark-up on cost of 50%. What is the cost price and the selling price?

Mark-up percentage = Profit / Cost Price

Switching this formula around:

Cost Price = Profit / Mark-up percentage
= R700 / 0.50
= R1,400

Selling Price = Cost Price + Profit
= R1,400 + R700
= R2,100

Hope that helps!

Michael Celender
Answer
by: Anonymous

$33.05
Answer
by: Anonymous

33.7312525
Shoes online( please answer quickly)
by: Anonymous

You are buying shoes online.The selling price is $29.99. Round to the nearest penny if necessary.

A.The sales tax is 6.5%. What is the total cost?

B. The cost of shipping is 15% of the total cost.What is the total cost plus shipping?

C. If the total cost plus shipping is greater than $35 then you receive a 10% discount off the original selling price.Do you qualify? If so, what is the new total cost plus shipping?
What is the Selling Price Based on Mark-up?
by: roselyn

How to find the selling price for a chair if it cost the retailer $225 if the retailer has a 55% markup based on cost?

Selling price = cost + mark-up
= 100% + 55%
= 155%

Selling price = 155/100 x $225
= $348.75

- Michael Celender
Founder of Accounting Basics for Students
Loss
by: EmoLover

If an article is sold at a loss of 25% and was bought for $1250, find the cost price.
Inventory
by: Hassan

Opening stock = 39,700.00
Purchases = 453,000.00
Sales = 551,000.00
Closing balance= ?????????
if markup 30%

To solve this problem you have to know the cost of sales formula and what mark-up percentage means. You may want to check out my lesson on Sales, Cost of Goods Sold and Gross Profit before continuing here.

The cost of goods sold formula:
Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory

Closing Inventory formula:
Closing Inventory = Opening Inventory + Purchases - Cost of Goods Sold

Closing Inventory = 39,700.00 + 453,000.00 - Cost of Goods Sold

But they don't give us cost of goods sold, only the sales.

So we use the sales figure and mark-up to get the cost of goods sold.

Cost of Goods Sold = 100/130 X Sales
= 100/130 X 551,000.00
= 423,846

Closing Inventory = 39,700.00 + 453,000.00 - Cost of Goods Sold

Closing Inventory = 39,700.00 + 453,000.00 - 423,846
= 68,854

Hope that helps understand mark-up, cost of good sold and closing inventory!

Best,
Michael Celender

Click here to add your own comments

Return to Ask a Question About This Lesson!.









© Copyright 2009-2023 Michael Celender. All Rights Reserved. 
Click here for Privacy Policy.