Karen is an acupuncturist with a busy practice. In addition to acupuncture services, Karen sells teas, herbal supplements, and rice-filled heating pads. Because Karen’s primary income is from acupuncture, she feels that she is providing the other items simply to fill a need and not as an important source of profits. As a matter of fact, the rice-filled heating pads are made by a patient who receives acupuncture for them instead of paying cash. The rice-filled pads cost Karen $5.00, $8.00, and $12.00, respectively, for small, medium, and large sizes. The ginger tea, relaxing tea, cold & flu tea, and detox tea cost her $2.59 per box plus $5.00 shipping and handling for 24 boxes. Karen uses a cost plus markup method, whereby she adds the same set amount to each box of tea. She figures that each box costs $2.59 plus $0.21 shipping and handling, which totals $2.80, then she adds $0.70 profit to each box and sells it for $3.50. Do you think this is a good pricing strategy? How would it compare to marking up by a percent- age of the cost?
- What is the markup percentage for a box of ginger tea?
- If the rice-filled heating pads sell for $7.00, $10.00, and $15.00 for small, medium, and large, respectively, what is the markup percentage on each one?
- Karen wants to compare using the cost plus method to the percentage markup method. If she sells 2 small rice pads, 4 medium rice pads, 2 large rice pads, and 20 boxes of $3.50 tea in a month, how much profit does she accumulate? What markup percentage based on cost would she have to use to make the same amount of profit on this month’s sales?
- What prices should Karen charge (using the markup percentage) to obtain the same amount of profit as she did with the cost plus method? Do not include shipping.