Textbook Problem

Many different businesses employ markup on cost to arrive at a price. For each of the following situations, explain what the markup covers and why it is the amount that it is.

1. a. Department stores have a markup of 100 percent of purchase cost.
2. b. Jewelry stores charge anywhere from 100 percent to 300 percent of the cost of the jewelry. (The 300 percent markup is referred to as “keystone.”)
3. c. Johnson Construction Company charges 12 percent on direct materials, direct labor, and subcontracting costs.
4. d. Hamilton Auto Repair charges customers for direct materials and direct labor. Customers are charged $45 per direct labor hour worked on their job; however, the employees actually cost Hamilton $15 per hour.