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Pricing Practice Problems
1. Suppose a retailer would like to achieve a 50% return on sales on shirts that cost them $8. What price should they charge?
2. Suppose the retailer sets up a clearance rack. Everything on the rack is 30% off. The discount will be taken at the register, and the regular price of the shirt is $19.99. What price will customers pay for the shirt?
3. If a retailer buys the shirt at a wholesale price of $8.00, what is their usual return on sales when selling the shirt at $19.99?
4. How much is their return on sales when they sell at the sale price of $13.99?
5. Suppose the retailer wanted to split the cost of offering the 30% discount with the wholesaler. They want their return on sales to be 50% and the wholesaler to eat the rest of the discount by lowering the wholesale price. What will the new wholesale price have to be?
Check Your Answers!
1. Suppose a retailer would like to achieve a 50% return on sales on shirts that cost them $8. What price should they charge?
Price = $8.00 = $16
1 – .5
2. Suppose the retailer sets up a clearance rack. Everything on the rack is 30% off. The discount will be taken at the register, and the regular price of the shirt is $19.99. What price will customers pay for the shirt?
$19.99 x .30 = $6.00 OR $19.99 x (1 – .3) = $13.99
$19.99 – $6.00 = $13.99
Discounted Price = $13.99
3. If a retailer buys the shirt at a wholesale price of $8.00, how much is their usual return on sales when selling the shirt at $19.99?
$19.99 – $8.00 = $11.99 = .60 The return is 60%.
$19.99 $19.99
4. How much is their return on sales when they sell at the sale price of $13.99?
$13.99 – $8.00 = $5.99 = .43 The return is 43%.
$13.99 $13.99
5. Suppose the retailer wanted to split the cost of offering the 30% discount with the wholesaler. They want their return on sales to be 50% and the wholesaler to eat the rest of the discount by lowering the wholesale price. What will the new wholesale price have to be?
$13.99 – Cost = .50 OR If Return = 50% of Price, Cost = 50% of Price
$13.99 $13.99(.50) = $6.995
$13.99 – Cost = $13.99(.50) (one of them has to round up – you choose)
$13.99 – Cost = $7.00
$6.99 = Cost