Purchase Orders

Merchandising Concept 4-1: Calculate Cost and Retail Extensions with Markup Percentages:
The purchase order is the contract between a buyer and a vendor and must be completed carefully to avoid any costly mistakes.
Today, many buyers use computer systems that allow them to electronically produce completed purchase orders, but all buyers can construct an excel spreadsheet tha will allow them to perform all of the mathematical calculations they need to ensure accuracy.
Key calculations for purchase orders that buyers usually perform include:
1.) Cost extensions
2.) Retail extensions
3.) Total cost of items purchased
4.) Total retail of items purchased
5.) Individual markup percentages
6.) Cumulative markup percentage of purchases

Sample Problem

A buyer is writing a purchase order to Acme Inc. for the following two items:
1.) 60 shirts that cost $12.99 each and will retail for $26.50 each
2.) 20 belts that cost $7.24 each and will retail for $14.99 each.

Calculate the total cost of the purchase from Acme Inc. as well as the total retail value of the purchase. In addition, calculate the individual markup percentage on each item as well as the cumulative markup percentage on the total purchase.

Sample Solution:

Step 1. Find the total cost of the purchase by multiplying the number of items purchased by the unit cost.

Item # of Items Unit Cost Total Cost
Shirts 60 x $12.99 = $779.40
Belts 20 x $ 7.24 = $144.80
Total Cost of Purchases = $924.20
Step 2. Find the total retail value of the purchase by multiplying the number of items purchased by the unit retail and adding the retail value of all items purchased.

Item # of Items Unit Costs Total Cost
Shirts 60 x $26.50 = $1,590.00
Belts 20 x $14.99 = $ 299.80
Total Retail of Purchases = $1,889.80

Step 3. Find the individual markup percentage for each item by dividing the dollar markup by the retail price.

Shirts ($26.50 - $12.99)/$26.50 = 51%
Belts ($14.99 - $7.24)/$14.99 = 51.7%

Step 4. Find the total cumulative markup percentage on the entire purchase by dividing total markup in dollars by the total retail of the purchases:

($1,889.80 - $924.20)/$1,889.80 = 51.1% (cumulative markup)

Using Computerized Spreadsheets
A spreadsheet can be constructed to perform all of the calculations when the buyer enters these three pieces of information for each item purchased: (1) number of items ordered, (2) unit cost, (3) unit retail. Use the spreadsheet that has already been designed to complete the problems that follow. Record all your answers on the forms for Assignment 4.1.1.
Assignment Problems:
For each of the following problems, calculate (1) total cost of times purchased, (2) total retail value of items purchased, (3) individual markup percentages, and (4) cumulative markup percentage of purchases.