[Revised Apr 04]
Uses of List & Real cost and retail price, and their relationships.
Usual method
List cost is the usual cost price received from the wholesaler
Real cost is a price which may be calculated to take discounts, bonuses or special prices in to account and would be used for reports to show the true profit & other details.
The markup shown on the stock card would be that which would be achieved from the usual list cost and the retail price.
Method showing actual markup achieved on stock cards.
List Cost would be the actual cost of the item & could be calculated to take discounts, bonuses or special prices in to account.
Real cost would be used as a reference & for reports and would be the normal price for the item.
Retail price would be the price the item is sold at.
The markup would be calculated from the actual cost price and the actual retail price
Note:- With this method, considerable monitoring and editing would be required, as price updates received contain the normal cost prices.
Suppression of retail price change on updates
E.g. Item list cost $1.00 and so normally retail $1.50.
But pharmacy buys it for real cost of 80c and wants to sell it for $1.20.
Pharmacy has $0.80 set on 'list cost' line and wants to suppress the request each month to change List cost and Retail.
Solution;
Set the prices to reflect the true situation, that is a 'List cost = $1.00" and "Real cost = $0.80" and "Retail = $1.20"
This will give a nominal markup of 20% (forgetting GST for the moment for simplicity) from list cost to retail, which is correct. The monthly wholesaler update will no longer attempt to 'fix' the price, until the list cost changes from $1.00.
Reports should be asked for on 'real cost' so they reflect the true profit.
Price 'racheting'.
There is a fundamental problem that you cannot have rounding without introducing 'racheting', and total precision is not possible, leading to spontaneously changed retail prices.
i.e. There are three values, cost/markup/retail, and users must be allowed to change any one of these which necessarily affects the other two. But the retail must be in 5c increments. Thus if we have (ignoring gst) cost $1.00, markup 50% and therefore retail $1.50, which is no problem. But if the cost is changed to $1.02 then 50% on that is $1.53, which rounds to $1.55 thus requiring the markup to also be changed to 51.96078%, both retail and markup have to change to accommodate the new cost. At this stage the problem of 'racheting' occurs; the cost goes to $1.04 which with a 51.96078% markup becomes $1.58 retail which rounds to $1.60 which calculates back to a markup of 55.3398%. You get 'markup racheting', where the cost and markup make minor changes spontaneously. To date no-one has been able to think of a solution to this minor problem that does not itself cause greater problems.
Note
In the Staff And Sales Report the GROSS ($) is calculated from the Real Cost Markup % .
The Gross $ on the staff and sales report (and other sales report) is based on real cost (the cost price saved on each sale is based on the real cost price - so that all sales report show true GP etc).
Related topics