Managing Price Changes

Having realized that the reorder was going to be charged at $26.50, our manager would have revised the selling price to $43.25 to reflect the increase while maintaining the same relative gross profit margin. Let’s see how profit margins are affected by the increase:

Effect of Cost and Selling price Change on Margin

Retail Price

Selling

Cost

January 5, 201X

39.95

25.00

January 8, 201X

43.25

26.50

Transaction Date

Sales

Cost

Gross Margin

Quantity

Price

Amount

Quantity

Price

Amount

Amount

%

January 6, 201X

4

39.95

159.80

4

25.00

100.00

59.80

37.4

January 7, 201X

5

39.95

199.75

5

25.00

125.00

74.75

37.4

January 9, 201X

3

43.25

129.75

3

25.00

75.00

54.75

42.2

January 9, 201X

2

43.25

86.50

2

26.50

53.00

33.50

38.7

Totals for the period

14

575.80

14

353.00

222.80

38.7

By responding to a cost price change with a revision in retail pricing, we have been able to maintain our required margin. In fact, components of the January 9th transaction showed longer margins than those we realized earlier in the month. When that new shipment arrived on January 8th, the stock was ticketed at the new selling price of $43.25. To avoid confusion, the remaining 3 units from the first shipment were re-ticketed at $43.25. When these were sold, extra margin was realized. In practice, these price changes smooth out over time and, as long as we react to source price changes in a timely way, we should be able to maintain our target margins.

Go to top