Marking to market

Cost and management accounting.

Markup is an amount added to relevant costs, to calculate a selling price.

It is usually expressed as a percentage of relevant costs.

Relevant costs will usually, but not always, be direct costs of production.

Markup is calculated in the same way as Margin on costs, using the same inputs:

Markup = profit ÷ costs

Example 1: Markup calculation

Selling price = 100

Relevant costs = 70

The surplus (profit):

= selling price - costs

= 100 - 70

= 30.

And the markup:

= profit / costs

= 30 / 70

= 42.9%.

Note the Markup is normally used in a planning and price setting context, looking ahead. The similarly calculated Margin on costs may be seen equally in both historic accounting contexts and in planning and price setting.

Example 2: Price setting using markup

Costs = 70

Markup = 42.9%

Calculate the selling price

Required surplus (profit):

= 70 x 0.429

= 30.

Selling price:

= costs + profit

= 70 + 30

= 100.

Short cut calculation:

Selling price = costs x (1 + markup)

= 70 x (1 + 42.9%)

= 70 x 1.429

= 100 (as before).

See also

• Cost
• Direct costs
• Management accounting
• Margin
• Overheads
• Profit margin
• Profit