12

Business
Mathematic
s
Quarter 1 – Module 6:
Gross Margin, Trade
Discount and Discount
Series
 What I Need to Know

Hi there, my dear student! This 6 th module will help you master the gross
margin, trade discount and discount series. Getting to understand the
relationship between margin and mark-up is vital for a business. Do the Math
wrong and you may end up losing money without even realizing it. On the other
hand, if done right it can help in planning and implementing your long term and
short term strategic initiatives.

In this module, you will be able to:

 differentiate mark-up from margins;
ABM_BM11BS-Ih-3
 describe how gross margin is used in sales; and
ABM_BM11BS-Ih-4
 compute single trade discounts and discount series.

Specifically, you are expected to:

1. differentiate mark-up from margins;
2. describe how gross margin is used in sales;
3. differentiate single trade discount from discount series; and
4. compute single trade discount and discount series.

What I Know

Before going through this module, let us find out how much you already
know about gross margin, single trade discount and discount series. After taking
and checking this short test, take note of the items that you were not able to
answer correctly and look for the right answer as you go through this module.

Direction: Encircle the letter of the correct answer.

1. What do you call the sales minus the cost of goods sold?
a. mark-down
b. margin
c. mark-on
d. mark-up

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2. What do you call the amount the manufacturer deducts from the list price
of the item?
a. discount series
b. margin
c. mark-up
d. trade discount

3. What is the account used to report the selling price of the merchandise?
a. cost of sales
b. list price
c. margin
d. sales

4. A product sells for ₱100 and costs ₱85 to manufacture it. How much is
the margin in percentage?
a. 0.15%
b. 0.85%
c. 15%
d. 85%

5. A seller of books wanted a mark-up based on cost of 20%. If his book costs
₱550, how much will be the mark-
up? a. ₱27.50
b. ₱110
c. ₱2,750
d. ₱11,000

6. Mona sold her craft at a selling price of ₱750. The cost of her craft
amounts to ₱475. What is the gross profit margin?
a. 0.37%
b. 0.58%
c. 37%
d. 58%

7. The list price of an electric fan is ₱1,200. A certain appliance store can buy
the electric fan at the list price less 20%. What is the trade discount?
a. ₱24
b. ₱96
c. ₱240
d. ₱960

8. The list price of an electric fan is ₱1,200. A certain appliance store can
buy the electric fan at the list price less 20%. What is the net price of the
electric fan?
a. ₱240
b. ₱960
c. ₱1,104
d. ₱1,176

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 9. DJ’s regular pork supplier gives her a 5% discount on her meat purchases
every week. If the price of the pork this week is ₱375 per kilo and he is
planning to buy 1.5 kilos, how much trade discount will he receive from
this purchase?
a. ₱28.13
b. ₱187.50
c. ₱281.50
d. ₱534.37

10. For the year-end party, Joerdan gave each of his 34 classmates a shirt with
a unique design for their class remembrance. He found a supplier who
gives 8% discount for a minimum of 25 shirts purchased. The total cost of
the shirts Joerdan purchased amounted to ₱3,910. How much was the unit
selling price of the shirts?
a. ₱105
b. ₱115
c. ₱125
d. ₱135

11. A distributor was able to buy an item for ₱736 after a trade discount series
of 15/10/4. How much was the original selling price of this item?
a. ₱900.18
b. ₱902.18
c. ₱1,000.18
d. ₱1,002.18

12. John found a set of surround sound speakers for his bistro that lists for
₱600 and a trade discount series of 15/10/5. What is the net price that
John will pay?
a. ₱416.05
b. ₱420.05
c. ₱426.05
d. ₱436.05

13. John found a set of surround sound speakers for his bistro that lists for
₱600 and a trade discount series of 15/10/5. How much is the trade
discount?
a. ₱183.95
b. ₱179.95
c. ₱173.95
d. ₱163.95

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 14. Joel found an oval mat cutter that he wants to purchase and use in framing
pictures. It lists for ₱1,500 and has a trade discount series of 30/20/10.
What is the single discount equivalent?
a. 0.40
b. 0.496
c. 0.504
d. 0.60

15. Joel found an oval mat cutter that he wants to purchase and use in framing
pictures. It lists for ₱1,500 and has a trade discount series of 30/20/10.
How much is the trade discount?
a. ₱600
b. ₱744
c. ₱756
d. ₱900

That’s good! You have tried your best. Now, keep going until you have
reached the end of this module.

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Lesso Gross Margin, Trade
n
Discount and
6 Discount
Series
Hey there! Are you excited to take this 6 th module for this quarter?
Awesome! It’s great to know that you are now ready to explore new learning.
Recalling your previous module, you have learned that when you venture on
business, you have to decide on setting the price right.

What’s In

In the 5th module, you have learned how to differentiate mark-on, mark
down and mark-up and obtain mark-on, mark down and mark-up given the price
of a product. So, let’s review on the following terms for you to better understand
the lessons in this module.

Activity 1: Energize Your Mind

Direction:

A. Complete the table below. Show your solutions on a separate sheet of

paper.

SELLING
COST MARKUP MU % COST MU % SP
PRICE

₱ 120 ₱ 100
1. 2. 3.

₱ 200 ₱ 135 48.148%

4. 5.

₱ 399
28%
6. 7. 8.

₱ 3,200 ₱ 2,755 16.15%

9. 10.

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 B. Write True if the statement is correct, False if otherwise.

11. Cost refers to the purchase price of an article.

12. Mark-on refers to the amount added to cost to arrive at the
original selling price.
13. Markdown refers to reduction in the cost.
14. Mark-up based on cost means that cost is the base and, therefore,
taken as 100%.
15. Mark-up based on selling price means that selling price is the rate
and, therefore, taken as 100%.

Good Job! Keep going.

What’s New

How are you doing? Have you recalled the formulas and solutions in solving
mark-up based on cost/selling price? So now, let me introduce to you the new
topic through this next activity. In this activity, you will be able to differentiate
mark-up from margin and understand the key terms involve in the buying and
selling process.

Activity 2: Describe/Interpret Me!

Direction: Describe or interpret the given illustrations in 2-5 sentences only.

Margin – Numerically,
1. it is percentage of
selling price.

Markup –
Numerically, it is a
cost multiplier.

2.
Defined as a Function
of:

Margin – Sales.

Markup – Cost.

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 Expressed from the Perspective of:
3.
Margin – Seller.

Markup – Cost.

Mathematical
Formula:

4. Margin – (selling
price – Cost
price) / Selling
price

Markup – (selling
price – Cost
price) / Cost
price

5. Selling price = P250

Margin Mark-up
P20
8% 8.7%

Cost price = P230

Sticks
Camote
Cost Price
Sugar
Cooking Oil
6. Salaries
Selling price Operating Expenses Rent
Utilities
Miscellaneous
Markup
Profit Break-even
Camote Cue Business Mark-on

Markdown
Discounted price Sale Price
Break Even Price

Great job! Let’s get it done.

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 What is It

You have learned in the previous activity the difference between mark-up
and margins, and some terms/concepts in the buying and selling process.

The focus of our discussion this week will be bigger businesses as compared
to the ones that were discussed last week. This module will focus on the
mathematics of buying and selling. In business situations, it is necessary to find
the missing information. The cost, mark-up, margins, selling price, and discounts
are related so that when any two amounts are known, the third amount can be
found.

Let us now unlock the key terms in our lesson.

 Computing for discounts makes use of our basic percentage problem

formula P=BR, where the base (B) is the list price, the rate (R) is the
discount rate, and the percentage (P) is the discount. Therefore,
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = 𝐿𝑖𝑠𝑡 𝑃𝑟𝑖𝑐𝑒 𝑥 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒.
 Cost of goods sold or cost of sales is how much the seller buys the item.
 Discount series is a type of discount in which several discounts are given
at different times and different conditions. These are given to customers in
order to encourage them to purchase in volume.
 List price is the fee for a service or product before discounts are reduced
or sales are added.
 Margin (also known as gross margin) is sales minus the cost of goods sold
or cost of sales.
 Mark-up is the amount by which the cost of a product is increased in
order to derive the selling price. It can also be defined as the sum of the
expenses and profits.
 Net price is the final charge you pay for a product or service after
discounts and sales taxes are computed.
 Sales is the account used to report the selling price of the merchandise.
 Trade discount is a reduction from list price granted to buyers. It is the
amount by which the retail price of a product is reduced by the
manufacturer when it is sold to the reseller or customer. It could either be
single discount or a series of discounts.

How gross margin is used in sales?

Margin (more popularly known as gross margin) in simple terms is

revenue (sales) minus the cost of goods sold (COGS).

Margin = sales – cost of goods sold.

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 Example 1: If a flower pot sells for ₱300 & costs ₱200 to produce, its margin
would be calculated as ₱100. Margin = ₱300 - ₱200 = ₱100. If expressed in
percentage terms, the margin percentage will be 33.33% (calculated as the
gross margin divided by total sales i.e. (₱100/₱300) X 100. This is the mark-up
based on sales or selling price.

Mark-up is the amount that should be added to the manufacturing cost of

a product to derive the price that it should be sold at. Continuing with our above
example, a mark-up of ₱100 from the cost price of ₱200 yields the ₱300 price. Or,
stated as a percentage, the mark-up percentage is 50% (calculated as the mark-
up amount divided by the product cost i.e. (₱100/₱200) X 100.

The difference between profit margin and mark-up is that profit margin is
sales minus the cost of goods sold; meanwhile, mark-up is the amount by which
the cost is increased on a product to arrive at the selling price.

Example 2: If a company earned ₱15,000 in revenue (sales) and the cost to

produce it was ₱9,000, the gross profit would be ₱6,000 and the gross profit
margin would be 40% = (₱15,000 – ₱9,000) / (₱15,000).

In this example, the mark-up is the same as the gross profit, or ₱6,000,
because the selling price was ₱15,000 and the cost was ₱9,000 to produce.
However, the mark-up percentage is shown as a percentage of the cost as
opposed to a percentage of revenue with gross margin. Thus, using the same
numbers as an example, the mark-up percentage would be equal to (₱15,000 -
₱9,000) / (₱9,000) or 66.67%.

Profit margin and mark-up show two different sides of the transaction. The
profit margin shows the profit as it relates to the selling price or the revenue
generated, whereas the mark-up shows the profit as it relates to the cost
amount. Typically, mark-up determines how much money is being made on a
specific item relative to its direct costs, whereas profit margin takes into
consideration total revenues and total costs from various sources and various
products.

What is the difference between Single Trade Discount and Discount Series?

Manufacturers and distributors give retailers trade discounts as incentives

for a sale. Discounts are usually established by discount rates, given in percent
or decimal form, based on the money owed. The discount, then, is a percentage
of the list price.

Sometimes, a manufacturer wants to promote a particular item or

encourage additional business from a buyer. Also, buyers may be entitled to
additional discounts as a result of buying large quantities. In such cases, the
manufacturer may offer additional discounts that are deducted one after another
from the list price. Such discounts are called a trade discount series, chain
discounts or successive discounts.
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How to compute Trade Discount using a Single trade discount rate?

1. Identify the single trade discount rate and the list price.
2. Multiply the list price by the decimal equivalent of the single trade
discount rate.
Trade discount = single trade discount rate x list price
T=RxL

Because the trade discount is deducted from the list price to get the net
price, once you know the trade discount, you can calculate the net price.

How to compute the net price using the trade discount?

1. Identify the list price and the trade discount.

2. Subtract the trade discount from the list
price. Net price = list price – trade
discount
N=L–T

Let’s have an example.

Example1. What is the net price (N) of a compressor nebulizer with a list price of
₱1,050.00 subject to 15% discount?

Given: List Price = ₱1,050.00

Discount Rate = 15%
Find: a. Discount
b. Net Price
Solutions:
a. Discount = List Price X Discount Rate
= ₱1,050.00 X 15%
= ₱157.50
b. Net Price = List Price – Discount
= ₱1,050.00 - ₱157.50
= ₱892.50
Another way of computing for the net price is to multiply the list price by
the net price rate. The net price rate is equal to 100% less the discount rate.
Thus,

Net Price (N) rate = 100% - Discount Rate

N rate = 100% - 15%
N rate = 85%

Net Price = List price x N rate

= ₱1,050.00 X 85%
= ₱ 892.50

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To get the discount, we deduct the net price from the list price.

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 Discount = List price – Net price
= ₱1,050.00 - ₱892.50
= ₱157.50

This checks the result we got when we multiplied the list price by the
discount rate to get the discount.

In certain instances, a seller grants additional discounts other than the

discount ordinarily given by him or her. For instance, aside from the regular 20%
discount, a seller may grant a special additional discount of 5%. The series of
discounts is, therefore, 20% and 5%. This is not, however, equivalent to 25% as
we shall see later.

How to compute Series of Discounts?

Let’s have an example.

Example 2. How much is the discount and the net price of a cellular phone listed at
₱5,720.00 if given a 20% and 5% discount?

Given: List Price = ₱5,720.00

Discount Rates = 20% and 5%
Find: a. Discount
b. Net Price

Solutions:

For a series of discount, there are three methods that we can use.

a. Method 1. Multiply the list price by the first discount rate. The next
discount rate is then applied on the difference between the
list price and the first discount to get the second discount.
Then, we deduct the second discount from the said
difference. We continue with the same process depending on
the number of discounts in the series.

List Price ------------------------------------------ ₱5,720.00

Less 20% (₱5,720 X 20%)-------------------- 1,144.00
Difference ---------------------------------------- ₱4,576.00
Less 5% (₱4,576 X 5%)------------------------
--------------------------------------------------------228.80
Net Price ₱4,347.20

Our total discount is equal to the first discount plus the second discount.

Total discount = ₱1,144 + ₱228.80

= ₱1,372.80

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 b. Method 2. Deduct the first discount rate from 100% and multiply the list
price by the rate obtained. Deduct the second discount rate
from 100% and multiply the first balance obtained by the
second balance rate obtained.

100% - 20% (first discount rate) = 80%

List price -------------------------------------

---------------------------------------------------₱5,720.00
First balance rate--------------------------X 80%
First balance ₱4,576.00

100% - 5% (second discount rate) = 95%

First balance ---------------------------------
----------------------------------------------------₱4,576.00
Second balance rate------------------------X
---------------------------------------------------- 95%
Net Price ₱4,347.20

Discount = List price – Net Price

= ₱5,720.00 - ₱4,347.20
= ₱1,372.80

We obtained the same result as what we got in Method 1.

c. Method 3. Convert the series of discounts to a single equivalent rate. To do

so, we first deduct the series of discounts individually from
100% and then multiply the resulting products by themselves to
give us the net price (N) rate. If we multiply the net price (N)
rate by the list price, we get the net price. Deducting the net
price from the list price will give us the single equivalent
discount. Alternatively, we deduct from 100% to get the single
equivalent discount rate. This single equivalent rate is then
multiplied with the list price to get the discount. When we
deduct the discount from the list price, we get the net price.

100% - 20% = 80%

100% - 5% = 95%

80% X 95% = 76% (N rate)

100% - 76% = 24% (Single equivalent rate)
Take note that if we add the net price (N) rate and the single equivalent
discount rate, we will get 100%.

Discount = List price x Single equivalent discount rate

= ₱5,720.00 x 24%
= ₱1,372.80

Net Price = List price – Discount

= ₱5,720.00 - ₱1,372.80
= ₱4,347.20

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 Compare the results we obtained under this method with the results we
got under Method 1 and Method 2.

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 What’s More

How are you coping with our lesson? This time you are to solidify your
understanding and skills on the difference between margin and mark-up and how
to compute single trade discount and discount series.

Activity 3: Solve Me!

Direction: Read and analyze the problem carefully. Solve each problem by
showing all your solutions.

1. A living room set worth ₱5 250.00 was granted a discount of ₱345.00.

Find the: Solutions

a. discount rate.

b. net invoice price.

c. net invoice price rate.

2. A GoPro camera is listed at ₱13 651.00 less 15% and 4%.

Find the: Solution

a. net invoice price

b. discount using
Method 1

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c. discount using
Method 2

d. discount using
Method 3

2. Tender Loving Care Corporation sells educational supplies. A particular

set of books listed at ₱15 050.00 was given a 15%, 6%, and 3% series
discount.

Compute for the: Solution

a. net invoice price

b. single equivalent
discount rate

c. net invoice
price (NIP) rate

Great job! You can solve problems involving trade discount and
discount series.

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 What I Have Learned

Now, let us process what you have learned. Let’s do this activity!

Activity 4: Complete and Write about Me!

Direction:
A. Fill-in the blanks with the correct term(s)/ word(s).

Difference between Margin and Mark-up

The key difference between margin and mark-up is that margin refers to the
(1) derived by subtracting the (2) of the company during
an accounting period with its total (3) _ whereas, the (4)
refers to the amount or (5) of profits derived by the company over
the cost price of the product.

B. Write an essay briefly and concisely.

6. How does margin differ from mark-up?

7. Why do manufacturers give discounts to their buyers/retailers?

8. In the 3 methods in solving a series of discount, which method is the most

convenient to you? Why?

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 What I Can Do

Activity 5: I Can Do This!

Direction: Considering the knowledge you have learned in the previous activities.
Complete the open-ended statements below.

1. I am planning to start/ open a small business on

2. I will choose this product/ small business because

3. The basis/bases for determining how much I should sell my product is/ are

4. I will convince the people to buy more of my products through

Congratulations! You have done a good job.

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 Assessment

Now, let us test what you have learned from the very start of our lesson. Read
carefully and answer the questions below.

Direction: Encircle the letter of the correct answer.

1. What do you call the amount the manufacturer deducts from the list price
of the item?
a. discount series
b. mark-down
c. net price
d. trade discount

2. What is the account used to report the selling price of the merchandise?
a. cost of sales
b. list of price
c. margin
d. sales

3. What do you call the sales minus the cost of goods sold?
a. list price
b. margin
c. mark-up
d. net price

4. A cellphone cover sells for ₱250 and costs ₱185 to manufacture. How much
is the margin in percentage?
a. 0.26%
b. 0.35%
c. 26%
d. 35%

5. A seller of tumbler wanted a mark-up based on cost of 12%. If his tumbler

a. ₱5.52
costs ₱460, how much will be the mark-up?

b. ₱55.2
c. ₱465.20
d. ₱515.20

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 6. Claire sold her craft at a selling price of ₱750. The cost of her craft
amounts to ₱475. What is the mark-up percentage?
a. 0.37%
b. 0.58%
c. 37%
d. 58%

7. How much is trade discount of an electric fan if the list price is ₱1,200 and
is 20% less?
a. ₱24
b. ₱96
c. ₱240
d. ₱960

8. The list price of an electric fan is ₱1,200. Allan can buy the electric fan at
the list price less 20%. How much will Allan pay?
a. ₱240
b. ₱960
c. ₱1,104
d. ₱1,176

9. Sharlit’s tuna supplier gives her a 5% discount on her purchases every

week. If the price of the tuna this week is ₱375 per kilo and she is
planning to buy
1.5 kilos, how much trade discount will she receive from this
purchase? a. ₱ 28.13
b. ₱187.50
c. ₱281.50
d. ₱534.37

10. For the year-end party, Theresa gave each of her 34 classmates a shirt
with a unique design for their class remembrance. She found a supplier
who gives 8% discount for a minimum of 25 shirts purchased. The total
cost of the shirts Theresa purchased amounted to ₱3,910. How much was
the unit selling price of the shirts?
a. ₱105
b. ₱115
c. ₱125
d. ₱135

11. A beauty product distributor was able to buy an item for ₱736 after a trade
discount series of 15/10/4. How much was the original selling price of this
item?
a. ₱900.18
b. ₱902.18
c. ₱1,000.18
d. ₱1,002.18

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12. Miles found an oval mat cutter that he wants to purchase and use in
framing pictures. It lists for ₱1,500 and has a trade discount series of
30/20/10. What is the single discount equivalent?
a. 0.40
b. 0.496
c. 0.504
d. 0.60

13. Errol found an oval mat cutter that he wants to purchase and use in
framing pictures. It lists for ₱1,500 and has a trade discount series of
30/20/10. How much is the trade discount?
a. ₱600
b. ₱744
c. ₱756
d. ₱900

14. Tolits found a set of surround sound speakers for his bistro that lists for
₱600 and a trade discount series of 15/10/5. What is the net price that
Tolits will pay?
a. ₱416.05
b. ₱420.05
c. ₱426.05
d. ₱436.05

15. Weng found a set of surround sound speakers for his bistro that lists for
₱600 and a trade discount series of 15/10/5. How much is the trade
discount?
a. ₱183.95
b. ₱179.95
c. ₱173.95
d. ₱163.95

Good Job! You did well on this module. Keep going!

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