Mark up
Mark up is defined as the rate of gross profit to cost of sales:Mark up = Gross Profit
Cost of salesMargin is defined as the rate of gross profit to sales:Margin = Gross profit Sales
Calculations of markup and margin are necessary to compute the profit loading on:
Examination questions may provide information on either the markup or the margin. If one is provided, it may be necessary to compute the other.Let us assume: X = Gross Profit Y = SalesTherefore: Margin = Gross Profit = X Sales YHowever: Sales – Costs = Gross ProfitOr: Costs = Sales – Gross Profit Which is stated as: Costs = Y – XAnd since: Mark up = Gross Profit CostsThis is stated as: Mark up = X Y – XIn summary, if: Margin = P/QThen the related Markup shall be P/(Q – P) Using similar arguments, it can be established tat if the Markup is give by P/Q,Then the related margin shall be P/(Q+P)