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I saw your video but i had few doubts. Please correct me if I am wrong.
Question#1
Markup:
The business use markup approach to calculate the sales price at which we can make the desired % profit.We use this approach because we know that every business need to sell goods at more than the cost they purchased goods at. It helps setting the sales price by adding the desired % profit on cost.
Question#2
Margins:
The business use margins approach to calculate the cost at which we can make desired % profit.We use this approach because we know that every business need to sell more than their cost. It helps setting the sales price by adding the desired % profit on sales.
Question#3
Both these approaches: markup and margins are used to calculate the selling price of a product.
Question#4
The difference is in the calculation of both approaches and both result in setting the same selling price for a product.
I am not sure what your questions are, but what you state is correct except that for the last one the selling price depends on what mark-up or margin they choose to apply.
1. This means that the business can adopt any method either markup or margin profits they choose to apply. Both of these methods are used to choose a selling price for a product.
2. To apply markup we need to assess the cost of a product first before we add the desired % markup profit to get the selling price for their product.
3. To apply margin we need to choose the selling price of a product first before we add the desired % margin profit to getthe cost for their product.
Am I correct?
1. Yes – it is up to the company to decide what selling price they want to charge, The might choose to have a standard margin or mark-up, but there are many other approaches they could use (but other approaches are not examinable until Paper PM)
2 and 3 That is what the company will do, but as I explain in my lectures, exam questions can expect you to use the %’s in various ways.
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