A retailer marks up all cosmetic products to allow for overhead expenses of 40% of cost and operating profit of 25% of cost. If a product does not sell within two months, the product is marked down to its break-even price. What rate of markdown is the retailer using?
A) 25%
B) 40%
C) 15.2%
D) 30%
E) 65%

Question

Quizplus · Accepted Answer

The break-even price is the cost price, which includes the overhead expenses (40%) and operating profit (25%), totaling 65% markup on cost. The markdown to reach break-even price from the marked-up price removes this 65% increase, which is not a straight 65% markdown due to the base for markdown being higher. The effective rate of markdown is calculated based on the final price being equal to the cost price, which after accounting for the markup, results in a 15.2% markdown from the selling price to reach the cost price again.

A Retailer Marks Up All Cosmetic Products to Allow for Overhead