Question

If a home goods retailer pays $33.50 for a vacuum answer the following questions. (Round dollars to the nearest cent and percents to the nearest tenth of a percent.)

The vacuum cleaner sells for $89.99 and the 1-yr Replacement Policy is $7.99

(a) What is the percent markup based on selling price?

(b) If the retailer pays $1.60 to the insurance company for each product replacement policy sold, what is the percent markup based on selling price of the vacuum cleaner and policy combination?

(c) If 6,000 vacuum cleaners are sold in a season and 40% are sold with the insurance policy, how many additional "markup dollars," the gross margin, were made by offering the policy?

(d) As a housewares buyer for the retailer, what is your opinion of such insurance policies, considering their effect on the "profit picture" of the department? How can you sell more policies?

Answer 1

Cost Price of Vaccum = $33.50

a.Selling Price of vaccum Cleaner = $ 89.99 ; Selling Price of 1 Yr replacement Policy = $7.99

Percent Markup on Selling Price = (Selling Price - Cost Price)/selling price *100 =($89.99 - $33.50) /($89.99)*100

Percent Markup on Selling Price = 62.83%

b. Total Cost of the Product = Cost Price of Vaccum + Cost Price of1 Yr replacement Policy = $33.50 + $1.60 = = $35.1

Total Selling Price including 1 yr replacement = $89.99 + $7.99 = $97.98.

Percent Markup On Selling and Policy Combination = ($97.98-$35.1)/$97.98 *100 = 64.17%

c. 40% of 6000 = 2400 pieces

additional gross margin = 2400*(Selling Price of Policy - Cost Price of Policy ) = 2400*(7.99-1.60) = $15336