Real-Life Math
Toy buyers use math in a number of ways: to set budgets, calculate exchange rates and calculate margins. "[Math skills] are important, but they are not super important," says toy buyer Rick Timcke.
You are a toy buyer. You spot a new and exciting toy that you think will generate a lot of sales. But your boss is not convinced. She wants to see how much profit it can make before she puts it on her store shelves.
Here are some terms you have to understand.
The gross profit margin is the amount of profit an item should generate before expenses. In this case, you want to make 40 percent profit off each toy sold.
So you need to price the toy accordingly. This is called the retail price. It is based on the cost of the toy.
The difference between the retail price and the cost is called markup. There is a direct relationship between the profit margin, the markup and the retail price.
Each new toy costs you $12. Calculate the potential gross profit of the new toy if your store sells 100 of them. Remember that each item sold must have a gross profit margin of 40 percent.