1. FMM 225 Key Concepts and Formulas
Billed Cost
· Billed cost = List price minus trade discounts(s)
· Billed cost = # Units purchased
Book Inventory
· Book inventory at retail = Physical inventory + Net retail
purchases (Total merchandise handled) + Other stock additions
Net sales Markdown differences Other deductions from stock
· Book inventory at cost Opening retail book inventory (100%
Cumulative markup % achieved on stock Purchases)
Build/Percentage Change/Trend
· Build/percentage change/trend = × 100
· Build/percentage change/trend = × 100
Cost (Markup Formulas)
· Cost $
· Cost % =
· Cost %
· Cost %
· Cost $
Cost of Goods Sold
· Total cost of goods sold $ Billed cost $ + Inward freight
charges $ + Workroom cost $ minus Cash discount $
·
· Cost of goods sold $
Customer Returns and Allowances
· Customer returns and allowances $ Total of all refunds or
credits to the customer on individual items of merchandise $
Number of units actually returned
· Customer returns and allowances %
· Customer returns and allowances $ Gross sales $ Customer
returns and allowances % and allowances $
Cumulative Markup %
· Cumulative markup % 100
Department’s Net Sales
2. · Department’s net sales % of total stores sales
Gross Margin
· Gross margin = Net sales
· Gross margin $ = Gross margin %
· Gross margin % = × 100
Gross Margin %
· Gross margin % 100
· Gross margin % 100
· Gross margin % 100
Gross Sales
· Gross sales Total of all prices charged to consumers of
individual items Number of units actually sold
Gross Sales $
Initial Markup %
· Initial markup %
· Initial markup %
· Initial markup %
Maintained Markup %
· Maintained markup % 100
· Maintained markup % 100
· Maintained markup % Initial markup % Retail reduction %
(100% Initial markup %)
· Purchase balance Total planned Purchases to date (pieces,
retail, cost, or markup %)
Markdown
· Markdown $ Original or present retail price $ New retail
price $
· Markdown $ Percentage off Present retail price $
· Total markdown $ First total $ markdown Second total $
markdown
· Planned Markdown $ N Markdown %
· Markdown %
· Markdown %
· Markdown cancellation Higher retail $ Markdown price $
· New Markdown $ Gross markdown $ Markdown canellation$
Markup
3. · Markup $ Retail $ Cost $
· Markup % on retail 100 or 100
· Markup % on retail 100 or 100
· Cumulative retail markup % on entire purchase
· 100 or 100
Net Cost
· Net cost $ = Billed cost $ Cash discount $
· Net cost $ = List price $ Trade discount(s) $ Cash discount $
Net Profit
· Net profit = Net sales
· Net operating profit = G
· Net profit $ = Net profit $
· Net profit% = × 100
Net Sales
· Net Sales $ = Gross sales $ Customer returns and allowances $
Operating Expenses
· Operating expenses = D
· Operating expenses $ = O
· Operating expenses = × 100
Retail
· Retail $ Cost $ Markup $
· Retail % Cost % Markup %
· Retail $ or
Retail Reduction %
· Retail reduction %
Sell Through Percentage
· Sell through %
· Shortage or overage
· Shortage (or overage) $ Closing book inventory at retail $
Physical inventory count at retail $
· Shortage %
· Planned dollar shortage Planned shortage percentage Planned
net sales $
Weeks of Supply
· Weeks of Supply
4. FMM 225
Key Concepts and Formulas
B
illed C
ost
·
Billed cost = List price minus
trade discounts(s)
·
Billed cost = # Units purchased
×
Invoice
cost
Book I
nventory
·
Book inventory at retail = Physical inventory + Net retail
purchases (Total merchandise handled) +
Other stock additions
-
Net sales
-
Markdown differences
-
5. Other deductions from stock
·
Book inventory at cost
=
Opening retail book inventory
×
(100%
-
Cumul
ative markup % achieved
on stock
+
Purchases)
Build/Percentage Change/T
rend
·
Build/percentage change/trend =
This
year
sales
-
last
10. ·
Cost of goods sold $
=
Cost
of
goods
%
×
Net
sales
$
Customer Returns and A
llowances
·
Customer returns and allowances $
=
Total of all refunds or credits to the customer on individual
items of merchandise $
×
Number of units actually returned
·
11. Customer returns and allowances %
=
customer
returns
and
allowances
$
gross
sales
$
×
100
·
Customer returns and allowances $
=
Gross sale
s $
×
Customer returns and allowances % and
allowances $
Cumulative M
arkup %
12. ·
Cumulative markup %
=
Cumulative
markup
$
Cumulative
retail
$
×
100
Department’s Net S
ales
FMM 225 Key Concepts and Formulas
Billed Cost
minus trade discounts(s)
Book Inventory
purchases (Total merchandise handled) +
Other stock additions -Net sales - Markdown differences - Other
deductions from stock
(100% - Cumulative markup % achieved
on stock + Purchases)
Build/Percentage Change/Trend
13. This year sales -last year sales
last year sales
× 100
This year sales -last year sales
planned sales
× 100
Cost (Markup Formulas)
-Markup $
Cost $
Retail $
×100
-Markup %
-Markup %
etail $×100% -Markup %)
Cost of Goods Sold
charges $ + Workroom cost $ minus Cash
discount $
Cost of goods sold $
Net sales $
×100
goods % ×Net sales $
Customer Returns and Allowances
credits to the customer on individual
items of merchandise $ × Number of units actually returned
customer returns and allowances $
gross sales $
×100
Customer returns and allowances % and
allowances $
14. Cumulative Markup %
Cumulative markup $
Cumulative retail $
× 100
Department’s Net Sales
Module Two:
Merchandising for a Profit
1
Recognize the importance of profit calculations in
merchandising decisions
Identify the components of a profit and loss statement,
including calculations of the following:
Net sales
Cost of goods sold
Gross margin
Expenses
Net profit
Objectives
15. Complete a profit and loss statement
Identify types of business expenses and their impact on profit
Use profit calculations to:
Make comparisons between departments and stores
Detect trends
Make changes in merchandising strategy to achieve an increase
in profits
Objectives (continued)
Alteration and workroom costs
Balance sheet
Billed cost
Build/percentage change/trend
Cash discounts
Closing inventory
Contribution
Controllable expenses
Controllable margin
Cost
Cost of goods sold (COGS)/cost of merchandise sold
16. Customer allowance or markdown
Customer returns
Customer returns and allowances
Direct expenses
Final profit and loss statement
Key Terms
Gross margin
Gross sales
Income statement
Indirect expenses
Inward freight
Net loss
Net operating profit
Net profit
Net sales
Opening inventory
Operating expenses
Operating income
Profit and loss statement
Reductions
Retail
Sales volume
Skeletal profit and loss statement
Total cost of goods purchased
Total cost of goods sold
Total merchandise handled
17. Key Terms
Key Concept Formulas
Cost of Goods Sold
Total cost of goods sold $ Billed cost $ + Inward freight
charges $ + Workroom cost $ - Cash discount $
Cost of goods sold $
Billed cost
Billed cost = List price – trade discounts(s)
Billed cost = # Units purchased
Key Concept Formulas
Customer Returns and Allowances
Customer returns and allowances $ Total of all refunds or
credits to the customer on individual items of merchandise $
Number of units actually returned
Customer returns and allowances %
Customer returns and allowances $ Gross sales $ Customer
returns and allowances % and allowances $
18. Key Concept Formulas
Department’s Net Sales
Department’s net sales % of total stores sales
Gross sales
Gross sales Total of all prices charged to consumers of
individual items Number of units actually sold
Gross sales $
Net Cost
Net cost $= Billed cost $ Cash discount $
Net cost $= List price $ Trade discount(s) $ Cash discount $
Net Sales
Net Sales $ = Gross sales $ Customer returns and allowances $
Key Concept Formulas
19. Key Concept Formulas
Build/Percentage Change/Trend
Build/percentage change/trend = × 100
= × 100
Gross Margin
Gross margin = Net sales
Gross margin $ = Gross margin %
Gross margin % = × 100
Key Concept Formulas
Operating Expenses
Operating expenses = D
Operating expenses $ = O
Operating expenses = × 100
Net Profit
Net profit = Net sales
Net operating profit = G
20. Net profit $ = Net profit $
Net profit% = × 100
Use of Profit Calculations
Exchange data and compare stores to determine relative
strengths and weaknesses.
Indicate the direction of the business and whether it is
prosperous, struggling for survival, or bankrupt.
Provide a statement for analysis so that knowledgeable changes
in management or policy can be made.
Improve the profit margin by using this analysis.
Profit Components
Retail store sells merchandise to consumers at a profit
Buyer is responsible for creating the merchandise assortment
Selecting merchandise is determined after planning and analysis
of what sold in a previous time period
Need to determine what, when, where, and how much to buy and
21. what to pay for these purchases
Cost: Amount the retailer/buyer pays for these purchases
Retail: Price stores offer merchandise for sale to the consumer
Defining the Basic Profit Factors
Net Sales: How much merchandise has been sold in dollars
Cost of Goods Sold (COGS): The amount paid for the goods
sold
Gross Margin (GM): Resulting amount when COGS is
subtracted from net sales
Operating Expenses: Expenses incurred in buying/selling
process other than the cost of goods
Net Profit: Resulting amount when expenses are subtracted from
GM
Defining the Basic Profit Factors
Gross sales: The entire dollar amount received for goods sold
during a given period before any reductions are taken. Can also
be though of as the total sales based on the initial or regular
retail price.
22. Reductions:
Customer returns: When merchandise is returned and the
customer receives a refund.
Customer allowance or markdown: Price reduction given to a
customer.
Net sales: Sales total after all reductions have been deducted
from gross sales. Amount of sales collected from the sale of
merchandise that actually remains sold. More significant sales
figure.
Defining the Basic Profit Factors
Cost of Goods Sold (COGS): Cost of merchandise that has been
sold during a given period
Cost or purchase: Price that appears on the purchase
order/invoice
Inward freight: Amount a vendor charges for transporting
merchandise to the retailer
Alteration and workroom costs: Charge to a department to get
merchandise ready for sale
Cash discounts: Percentage or dollar amount deducted from the
invoiced cost that was negotiated between the buyer and vendor
Defining the Basic Profit Factors
23. Gross Margin (GM): The buyer’s measure of profitability. To
maximize GM, buyers need to:
Drive sales
Negotiate the best cost price
Operating expenses:
Direct: Specific to a given department and would end if
department was discontinued
Indirect: Store expenses that exist whether a department is
added or discontinued
Defining the Basic Profit Factors
Gross Sales: Total initial dollars received for merchandise sold
during a given period
Concept:
Gross sales $ = Total of all the initial prices charged ×
Number of units
to consumers on individual items actually sold
Problem:
During the week (Sunday through Saturday), a toy department
sold 30 dolls (Group A) priced at $15 each; 25 dolls (Group B)
priced at $25 each; and 5 dolls (Group C) priced at $30 each.
24. What were the gross sales for the dolls for that week?
Sales
Solution
(Arithmetic):
30 dolls @ $15 each = $450
25 dolls @ $25 each = $625
5 dolls @ $30 each = $150
Total gross sales = $1,225
Sales
25. Customers can receive the following from a retailer:
Refund of the purchase price
Reduction to the selling price
These transactions result in a cancellation of the gross sale and
inventory value.
Reductions (markdowns) to the selling price are commonplace
in retailing today.
Customer Returns and Allowances
26. Concept:
Customer returns = Total of all refunds or credits ×
Number of units
And allowances $ to the customer on individual
actually returned
items of merchandise $
Problem:
On Saturday, the junior petite department refunded $98 for one
leather jacket;
$75 each for two wool skirts; and $55 each for two knit tops.
Other returns for the week amounted to $400, and the weekly
total of markdowns given was $1,687. What was the dollar
amount of customer returns and allowances for Saturday? For
the week?
Customer Returns and Allowances