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Unit 2 of 3 · B.Sc Textile Sem 5

Unit 2: Merchandising mathematics

Textile / Textile Product Costing notes · PTU syllabus (BSTD 502-20)

3 min read2 topics6 exam questions
On this page
  1. Unit summary
  2. Markup and markdown
  3. Operating costs and depreciation
  4. Key terms
  5. Quick revision
  6. Important questions

Unit summary

Merchandising mathematics explains how selling prices are set and adjusted. This unit covers markups, markdowns and the costing factors of rent, labour, operating cost, utilities and depreciation.

After this unit you can

  • Calculate markup and markdown
  • Include operating costs in the price
  • Compute depreciation of capital items

PTU syllabus topics

  • Markups and markdowns
  • costing factors — rent
  • labour
  • operating cost
  • utilities
  • capital depreciation
Key formulasMerchandising mathematics

  • Markup %

    (Selling price − cost) / cost × 100

  • Markup on retail %

    (Selling price − cost) / selling price × 100

  • Markdown %

    Price reduction / original price × 100

  • Retail price from cost

    Cost / (1 − markup on retail)

1

Topic 1

Markup and markdown

Key formulasMarkup and markdown

  • Markup on cost

    (Selling price − cost) ÷ cost × 100

  • Markup on selling price

    (Selling price − cost) ÷ selling price × 100

  • Selling price

    Cost + markup

  • Markdown

    Reduction from the original price

  • Markdown %

    (Original − reduced) ÷ original × 100

Example

A shirt costs ₹400 to make. Markup of 50% on cost gives selling price ₹600. Gross margin = ₹200, which is 33.3% of the selling price. A 20% markdown later gives ₹480, still ₹80 above cost.

GraphPrice build-up of a ₹600 shirt (₹)
ComponentsAmountOMaterial 220Labour 90Overheads90Profit 200

Markup covers overheads and profit; the more overheads, the less profit remains at a given price

2

Topic 2

Operating costs and depreciation

Operating costs include rent, wages, utilities and marketing. Depreciation is the fall in value of machines and equipment over time.

Key formulasStraight-line depreciation

  • Annual depreciation

    (Cost − scrap value) ÷ life in years

Example

Machine cost ₹1,00,000, scrap value ₹10,000, life 5 years: depreciation = (1,00,000 − 10,000) ÷ 5 = ₹18,000 per year.

GraphStraight-line depreciation: book value falls steadily
YearsBook valueOBook value

Each year the machine loses ₹18,000 of value; at the end of 5 years it equals the scrap value of ₹10,000

Key terms

Markup
Amount added to cost to get the price
Markdown
Reduction in price
Gross margin
Selling price minus cost
Depreciation
Fall in value of an asset
Overheads
Indirect costs

Quick revision

  • Markup % on cost = profit ÷ cost × 100.
  • Depreciation = (cost − scrap) ÷ life.
  • Markdown reduces price to clear stock.

Important exam questions

Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).

Short-answer questions

  1. Q1.Define markup.
  2. Q2.Calculate 25% markup on ₹200.
  3. Q3.What is depreciation?
  4. Q4.What is markdown?

Long-answer questions

  1. Q1.Explain markup and markdown with examples.
  2. Q2.Describe the costing factors of rent, labour, utilities and depreciation.

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