We have two responses for you
Lisa,
The difference in your calculations comes from not clearly specifying precisely what you mean by 30%.
You have calculated 30% of the cost. When the cost is $5.00 you add 0.30 × $5.00 = $1.50 to obtain a selling price of $5.00 + $1.50 = $6.50. This is what I would call a markup of 30%.
Your boss has calculated the markup as 30% of the selling price. To say this another way the $5.00 cost is 70% of the selling price. That is
0.70 × (selling price) = $5.00.
Thus selling price = $5.00/0.70 = $7.14. This is what I would call a margin of 30%.
So it comes down to precisely what the markup is. Is it 30% of the cost or 30% of the selling price?
Penny
Lisa,
Let's say you want to mark up the product by 30%. Doing it your way, the new price is (old price) + 0.30x(old price) = 1.30 x old price.
It is not the same to say that the old price is 70% of the new price, that is (old price) = 0.70x(new price), so that (old price) / 0.70 = new price.
Let's try it with some numbers. Suppose the old price is $100. Then according to your calculation, the new price is 1.30x$100 = $130.
According to the other calculation, the new price would be $100 / 0.70 = $142.85. That's quite different. The reason is that 130% of 100
is quite different than 70% of 130.
Maybe you had best talk to your boss to figure out which method he uses, and what he would prefer done in the store.
Victoria
