The company that I work for prices there products based on a mark-up
of points rather than points. For example:

Cost is $10.00 
They mark it up 20 points.
Their Formula= 10 divided by .8
Selling price is $12.50 (Where did that extra 50 cents come from?)

If they are marking it up 25 points then it would cost divided by .75

I always thought if you marked something up 20% and it cost you $10.00
then you would sell it for $12.00.

Is my company's way of doing this (and the terminology they use)
generally accepted? And also, where did that extra 50 cents come from?

Thank you in advance.

Hello spacey_jacey,

Thank you for the question.

Your confusion comes from the difference between markup and margin
(also called Gross Profit). I searched for [markup vs OR versus
margin] and found the following explanations for you:

http://csf.colorado.edu/archive/2000/cgin/doc00009.doc
Mark-Up and Gross Profits

Few terms are more misunderstood than "Mark-Up" and "Gross Profit".
You can go bankrupt by failing to know their meaning.

"MARK-UP is the percentage of the amount you earn on the COST of an
item you sell.

GROSS PROFIT is the percentage of the amount you earn on the SELLING
PRICE of the item.

That's a big difference.

When you relate earnings to sales, think of Gross Profit - not
Mark-Up. In terms of sales, Mark-Up has no meaning. Gross Profit tells
you what you retain on each $1 of sales. Confuse Gross Profit with
Mark-Up and you get a distorted picture of your business.

MARK-UP - How to Compute It:

A brand costs you $50 a case and brings in $65, $15 above cost. Divide
the cost ($50) into your earnings ($15), and you get a percentage of
30%. That's your Mark-Up on the cost.

GROSS PROFIT - How to Compute It:

The same brand costs you $50 and brings in $65, $15 over cost. Divide
the selling price ($65), into your earnings ($15), and you get a
percentage of 23.1%. That's your Gross Profit on the Selling Price. It
tells you that you earn 23.1 cents on each $1 of sales to meet your
expense of operation and net profit, if any."



Business Week Online
http://www.businessweek.com/smallbiz/content/jun2002/sb2002066_0123.htm

Mysteries of Markups and Margins

To consumers, cost is the figure printed on the price tag. For
manufacturers and retailers, it is a rather different calculation.

"A: You're right in that the two figures are not equal. Traditionally,
gross profit margin is figured on the sales price of an item, and the
markup is based on cost. Historically, retailers used the markup
method to determine the sales price while manufacturers used the gross
margin method. However, in today's retail environment, both terms are
often used interchangably to mean gross margin, says Paul Ratoff, a
Placentia (Calif.)-based small-business consultant.

The markup method involves increasing the price of an item by a
certain percentage over cost. For instance, a dress that cost the
company $100 wholesale would be offered for retail sale at $126 if the
store had a 26% markup on cost (multiply the markup percentage by the
cost and then add the result).

The gross profit margin on the sale is figured by subtracting the cost
($100) from the sales price ($126) and then dividing the result ($26)
by the sales price ($126). In this case, that produces a margin of
21%. Hope that helps!"

I trust my research and these two links will explain the confusion for
you.. If a link above should fail to work or my research require
further explanation, please do post a Request for Clarification.


Regards,

-=clouseau=-