Bellevue University Calculating Markup Dollars Percentages and Pricing Questions

The ability to calculate margin percentages and dollars is not only useful to assess performance, it is also critical for setting retail prices that maintain or increase margins to ensure profitability.

Scenario:

Jimmy works in a kitchen supply store that sells kitchen fixtures, products, and accessories. He helps the store’s owner buy new products and prices the merchandise for sale. During their spring buying trip to Chicago, the store’s owner purchased some new stainless steel pots for the summer season, at a cost of $32.00 per pot. When they returned from the buying trip, Jimmy was asked to calculate some numbers by the owner. Following are the results of Jimmy’s calculations:

• Over the last quarter:
  • expenses averaged 35%
  • markdowns averaged 12%
  • profit averaged 4.5%

The store’s planned net sales for the year are $325,000.

During an earlier buying trip, the store’s owner got great pricing on some pot-hanging racks and wooden ladles that can be grouped together with the new stainless steel pots in the store. Jimmy already priced the racks and ladles, as follows:

• 1 dozen hanging racks were purchased at $20 each. They will have a retail price of $42 each.
• 18 wooden ladles were purchased at $18 each. They will have a retail price of $38 each.

The store’s owner directed Jimmy to determine the average margin of this group of products to make sure that the targeted margin percentage for the store will be met.

Instructions:

1. Research the influence of various pricing strategies on product sell thru.
2. Use the information in the scenario to answer the following questions:
   1. Based on Jimmy’s results, calculate the initial markup percentage for the new stainless steel pots. Use the cost complement method to determine the initial retail price for the new pots. Include the calculations used to determine your answer.
   2. Based on the calculations used to determine the retail price in the previous question, what actual retail price would you recommend that Jimmy suggest for the new stainless steel pots? Justify your recommendation.
   3. If the store’s owner bought 2 dozen stainless steel pots, what would be the average margin percentage for the grouping of pots, hanging racks, and wooden ladles?
   4. The owner of the store tells Jimmy that he wants to achieve a 51.6% margin % for the store. Considering the owner’s targeted margin percentage, how does the average margin % for the group of products in the previous question compare with this target, and what should Jimmy suggest in order to bring the average margin for the group of products closer to the owner’s targeted percentage?
   5. Explain the benefits of using margin calculations to assess category performance when compared to store plans and goals. Use examples to support your explanation.
3. Compose a final paragraph summarizing your answers to the preceding questions, so that your final post is a minimum of five paragraphs in length.
4. Research and use at least one outside source to support your conclusions