Par Putters Company sells golf balls for $26 per dozen. The store’s overhead expenses are 31% of cost and the owners require a profit of 20% of cost.

a) For how much does Par Putters Company buy the golf balls?

b) What is the price needed to cover all of the costs and expenses?

c) What is the highest rate of markdown at which the store will still break even?

Answer:

Let Cost Price be denoted by CP.

Let Selling Price be denoted by SP. Given SP is $26 per dozen.

Given Profit is 20% of CP i.e. 0.20CP.

Overhead Expenses is 31% of CP i.e. 0.31CP.

We know that SP – CP = Profit.

Or SP = CP + Profit + Overhead Expenses

1. For how much does Par Putters Company buy the golf balls?

   SP = CP + Profit + Overhead Expenses

   Putting the respective values.

   26=CP+0.20CP+0.31CP

   26=(1+0.20+0.31)CP

   26=1.51CP

   CP=26/1.51

   CP=$17.21 per dozen

   Par Putters buy golf balls at $17.21 per dozen.

2. What is the price needed to cover all of the costs and expenses?

   Now Selling Price is needed to only cover costs and expenses and not Profit.

   SP=CP+ Overhead Expenses

   SP=$17.21+0.31*$17.21

   SP=$17.21+$5.33

   SP=$22.54

   $22.54 is the price needed to cover all the costs and expenses.

3. What is the highest rate of markdown at which the store will still break even?

   At $22.54 per dozen, the store will break even.

   Highest rate of markdown = ($26-$22.54)/$26

   =3.46/26 = 0.133 or 13.3%.