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Business
Mathematics
Quarter 1 – Module 6:
Gross Margin, Trade Discount
and Discount Series
Business Mathematics – Grade 11
Self-Learning Module (SLM)
Quarter 1 – Module 6: Gross Margin, Trade Discount and Discount Series
First Edition, 2020

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Introductory Message

This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions,
directions, exercises, and discussions are carefully stated for you to
understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-by-
step as you discover and understand the lesson prepared for you.

Pre-test are provided to measure your prior knowledge on lessons in each

SLM. This will tell you if you need to proceed on completing this module, or if
you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teachers are also
provided to the facilitators and parents for strategies and reminders on how
they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on any part
of this SLM. Use a separate sheet of paper in answering the exercises and
tests. Read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in answering the
tasks in this module, do not hesitate to consult your teacher or facilitator.

Thank you.

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 What I Need to Know

Hi there, my dear student! This 6th module will help you master the gross
margin, trade discount and discount series. Getting to understand the relationship
between margin and mark-up is vital for a business. Do the Math wrong and you
may end up losing money without even realizing it. On the other hand, if done right
it can help in planning and implementing your long term and short term strategic
initiatives.

In this module, you will be able to:

• differentiate mark-up from margins;
ABM_BM11BS-Ih-3
• describe how gross margin is used in sales; and
ABM_BM11BS-Ih-4
• compute single trade discounts and discount series.

Specifically, you are expected to:

1. differentiate mark-up from margins;
2. describe how gross margin is used in sales;
3. differentiate single trade discount from discount series; and
4. compute single trade discount and discount series.

What I Know

Before going through this module, let us find out how much you already know
about gross margin, single trade discount and discount series. After taking and
checking this short test, take note of the items that you were not able to answer
correctly and look for the right answer as you go through this module.

Direction: Encircle the letter of the correct answer.

1. What do you call the sales minus the cost of goods sold?
a. mark-down
b. b. margin
c. c. mark-on
d. d. mark-up

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2. What do you call the amount the manufacturer deducts from the list price of
the item?
a. discount series
b. margin
c. mark-up
d. trade discount

3. What is the account used to report the selling price of the merchandise?
a. cost of sales
b. list price
c. margin
d. sales

4. A product sells for ₱100 and costs ₱85 to manufacture it. How much is the
margin in percentage?
a. 0.15%
b. 0.85%
c. 15%
d. 85%

5. A seller of books wanted a mark-up based on cost of 20%. If his book costs
₱550, how much will be the mark-up?
a. ₱27.50
b. ₱110
c. ₱2,750
d. ₱11,000

6. Mona sold her craft at a selling price of ₱750. The cost of her craft amounts
to ₱475. What is the gross profit margin?
a. 0.37%
b. 0.58%
c. 37%
d. 58%

7. The list price of an electric fan is ₱1,200. A certain appliance store can buy
the electric fan at the list price less 20%. What is the trade discount?
a. ₱24
b. ₱96
c. ₱240
d. ₱960

8. The list price of an electric fan is ₱1,200. A certain appliance store can buy
the electric fan at the list price less 20%. What is the net price of the electric
fan?
a. ₱240
b. ₱960
c. ₱1,104
d. ₱1,176

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 9. DJ’s regular pork supplier gives her a 5% discount on her meat purchases
every week. If the price of the pork this week is ₱375 per kilo and he is
planning to buy 1.5 kilos, how much trade discount will he receive from this
purchase?
a. ₱28.13
b. ₱187.50
c. ₱281.50
d. ₱534.37

10. For the year-end party, Joerdan gave each of his 34 classmates a shirt with a
unique design for their class remembrance. He found a supplier who gives
8% discount for a minimum of 25 shirts purchased. The total cost of the
shirts Joerdan purchased amounted to ₱3,910. How much was the unit
selling price of the shirts?
a. ₱105
b. ₱115
c. ₱125
d. ₱135

11. A distributor was able to buy an item for ₱736 after a trade discount series
of 15/10/4. How much was the original selling price of this item?
a. ₱900.18
b. ₱902.18
c. ₱1,000.18
d. ₱1,002.18

12. John found a set of surround sound speakers for his bistro that lists for
₱600 and a trade discount series of 15/10/5. What is the net price that
John will pay?
a. ₱416.05
b. ₱420.05
c. ₱426.05
d. ₱436.05

13. John found a set of surround sound speakers for his bistro that lists for
₱600 and a trade discount series of 15/10/5. How much is the trade
discount?
a. ₱183.95
b. ₱179.95
c. ₱173.95
d. ₱163.95

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 14. Joel found an oval mat cutter that he wants to purchase and use in framing
pictures. It lists for ₱1,500 and has a trade discount series of 30/20/10.
What is the single discount equivalent?
a. 0.40
b. 0.496
c. 0.504
d. 0.60

15. Joel found an oval mat cutter that he wants to purchase and use in framing
pictures. It lists for ₱1,500 and has a trade discount series of 30/20/10.
How much is the trade discount?
a. ₱600
b. ₱744
c. ₱756
d. ₱900

That’s good! You have tried your best. Now, keep going until you have reached
the end of this module

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Lesson Gross Margin, Trade
6 Discount and Discount
Series
Hey there! Are you excited to take this 6th module for this quarter? Awesome!
It’s great to know that you are now ready to explore new learning. Recalling your
previous module, you have learned that when you venture on business, you have to
decide on setting the price right.

What’s In

In the 5th module, you have learned how to differentiate mark-on, mark down
and mark-up and obtain mark-on, mark down and mark-up given the price of a
product. So, let’s review on the following terms for you to better understand the
lessons in this module.

Activity 1: Energize Your Mind

Direction:

A. Complete the table below. Show your solutions on a separate sheet of

paper.

SELLING
COST MARKUP MU % COST MU % SP
PRICE

₱ 120 ₱ 100
1. 2. 3.

₱ 200 ₱ 135 48.148%

4. 5.

₱ 399
28%
6. 7. 8.

₱ 3,200 ₱ 2,755 16.15%

9. 10.

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 B. Write True if the statement is correct, False if otherwise.

11. Cost refers to the purchase price of an article.

12. Mark-on refers to the amount added to cost to arrive at the original
selling price.
13. Markdown refers to reduction in the cost.
14. Mark-up based on cost means that cost is the base and, therefore,
taken as 100%.
15. Mark-up based on selling price means that selling price is the rate
and, therefore, taken as 100%.

Good Job! Keep going.

What’s New

How are you doing? Have you recalled the formulas and solutions in solving
mark-up based on cost/selling price? So now, let me introduce to you the new topic
through this next activity. In this activity, you will be able to differentiate mark-up
from margin and understand the key terms involve in the buying and selling
process.

Activity 2: Describe/Interpret Me!

Direction: Describe or interpret the given illustrations in 2-5 sentences only.

Margin –
1. Numerically, it is
percentage of
selling price.

Markup –
Numerically, it is
a cost multiplier.

2.
Defined as a
Function of:

Margin – Sales.

Markup – Cost.

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 Expressed from
3. the Perspective
of:

Margin – Seller.

Markup – Cost.

Mathematical
Formula:

Margin – (selling
price – Cost
price) / Selling
price

Markup – (selling
price – Cost
price) / Cost price

Selling price = P250

Margin P20 Mark-up

8% 8.7%

Cost price = P230 Sticks

Camote
Cost Price
Sugar
Cooking Oil
Salaries
Operating Expenses Rent
Selling price Utilities
Miscellaneous
Markup
Profit Break-even
Camote Cue Business Mark-on

Markdown
Discounted price Sale Price
Break Even Price

Great job! Let’s get it done.

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 What is It

You have learned in the previous activity the difference between mark-up and
margins, and some terms/concepts in the buying and selling process.

The focus of our discussion this week will be bigger businesses as compared
to the ones that were discussed last week. This module will focus on the
mathematics of buying and selling. In business situations, it is necessary to find
the missing information. The cost, mark-up, margins, selling price, and discounts
are related so that when any two amounts are known, the third amount can be
found.

Let us now unlock the key terms in our lesson.

• Computing for discounts makes use of our basic percentage problem

formula P=BR, where the base (B) is the list price, the rate (R) is the discount
rate, and the percentage (P) is the discount. Therefore,
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = 𝐿𝑖𝑠𝑡 𝑃𝑟𝑖𝑐𝑒 𝑥 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒.
• Cost of goods sold or cost of sales is how much the seller buys the item.
• Discount series is a type of discount in which several discounts are given at
different times and different conditions. These are given to customers in
order to encourage them to purchase in volume.
• List price is the fee for a service or product before discounts are reduced or
sales are added.
• Margin (also known as gross margin) is sales minus the cost of goods sold or
cost of sales.
• Mark-up is the amount by which the cost of a product is increased in order
to derive the selling price. It can also be defined as the sum of the expenses
and profits.
• Net price is the final charge you pay for a product or service after discounts
and sales taxes are computed.
• Sales is the account used to report the selling price of the merchandise.
• Trade discount is a reduction from list price granted to buyers. It is the
amount by which the retail price of a product is reduced by the
manufacturer when it is sold to the reseller or customer. It could either be
single discount or a series of discounts.

How gross margin is used in sales?

Margin (more popularly known as gross margin) in simple terms is revenue

(sales) minus the cost of goods sold (COGS).

Margin = sales – cost of goods sold.

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 Example 1: If a flower pot sells for ₱300 & costs ₱200 to produce, its margin
would be calculated as ₱100. Margin = ₱300 - ₱200 = ₱100. If expressed in
percentage terms, the margin percentage will be 33.33% (calculated as the gross
margin divided by total sales i.e. (₱100/₱300) X 100. This is the mark-up based on
sales or selling price.

Mark-up is the amount that should be added to the manufacturing cost of a

product to derive the price that it should be sold at. Continuing with our above
example, a mark-up of ₱100 from the cost price of ₱200 yields the ₱300 price. Or,
stated as a percentage, the mark-up percentage is 50% (calculated as the mark-up
amount divided by the product cost i.e. (₱100/₱200) X 100.

The difference between profit margin and mark-up is that profit margin is
sales minus the cost of goods sold; meanwhile, mark-up is the amount by which
the cost is increased on a product to arrive at the selling price.

Example 2: If a company earned ₱15,000 in revenue (sales) and the cost to

produce it was ₱9,000, the gross profit would be ₱6,000 and the gross profit margin
would be 40% = (₱15,000 – ₱9,000) / (₱15,000).

In this example, the mark-up is the same as the gross profit, or ₱6,000,
because the selling price was ₱15,000 and the cost was ₱9,000 to produce.
However, the mark-up percentage is shown as a percentage of the cost as opposed
to a percentage of revenue with gross margin. Thus, using the same numbers as an
example, the mark-up percentage would be equal to (₱15,000 - ₱9,000) / (₱9,000)
or 66.67%.

Profit margin and mark-up show two different sides of the transaction. The
profit margin shows the profit as it relates to the selling price or the revenue
generated, whereas the mark-up shows the profit as it relates to the cost amount.
Typically, mark-up determines how much money is being made on a specific item
relative to its direct costs, whereas profit margin takes into consideration total
revenues and total costs from various sources and various products.

What is the difference between Single Trade Discount and Discount Series?

Manufacturers and distributors give retailers trade discounts as incentives for

a sale. Discounts are usually established by discount rates, given in percent or
decimal form, based on the money owed. The discount, then, is a percentage of the
list price.

Sometimes, a manufacturer wants to promote a particular item or encourage

additional business from a buyer. Also, buyers may be entitled to additional
discounts as a result of buying large quantities. In such cases, the manufacturer
may offer additional discounts that are deducted one after another from the list
price. Such discounts are called a trade discount series, chain discounts or
successive discounts.

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How to compute Trade Discount using a Single trade discount rate?

1. Identify the single trade discount rate and the list price.
2. Multiply the list price by the decimal equivalent of the single trade discount
rate.
Trade discount = single trade discount rate x list price
T=RxL

Because the trade discount is deducted from the list price to get the net price,
once you know the trade discount, you can calculate the net price.

How to compute the net price using the trade discount?

1. Identify the list price and the trade discount.

2. Subtract the trade discount from the list price.
Net price = list price – trade discount
N=L–T

Let’s have an example.

Example1. What is the net price (N) of a compressor nebulizer with a list price of
₱1,050.00 subject to 15% discount?

Given: List Price = ₱1,050.00

Discount Rate = 15%
Find: a. Discount
b. Net Price
Solutions:
a. Discount = List Price X Discount Rate
= ₱1,050.00 X 15%
= ₱157.50
b. Net Price = List Price – Discount
= ₱1,050.00 - ₱157.50
= ₱892.50
Another way of computing for the net price is to multiply the list price by the
net price rate. The net price rate is equal to 100% less the discount rate. Thus,

Net Price (N) rate = 100% - Discount Rate

N rate = 100% - 15%
N rate = 85%

Net Price = List price x N rate

= ₱1,050.00 X 85%
= ₱892.50

To get the discount, we deduct the net price from the list price.

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 Discount = List price – Net price
= ₱1,050.00 - ₱892.50
= ₱157.50

This checks the result we got when we multiplied the list price by the
discount rate to get the discount.

In certain instances, a seller grants additional discounts other than the

discount ordinarily given by him or her. For instance, aside from the regular 20%
discount, a seller may grant a special additional discount of 5%. The series of
discounts is, therefore, 20% and 5%. This is not, however, equivalent to 25% as we
shall see later.

How to compute Series of Discounts?

Let’s have an example.

Example 2. How much is the discount and the net price of a cellular phone listed at
₱5,720.00 if given a 20% and 5% discount?

Given: List Price = ₱5,720.00

Discount Rates = 20% and 5%
Find: a. Discount
b. Net Price

Solutions:

For a series of discount, there are three methods that we can use.

a. Method 1. Multiply the list price by the first discount rate. The next discount
rate is then applied on the difference between the list price and
the first discount to get the second discount. Then, we deduct
the second discount from the said difference. We continue with
the same process depending on the number of discounts in the
series.

List Price __________________________________________ ₱5,720.00

Less 20% (₱5,720 X 20%) --------------------- 1,144.00
Difference_________________________________________ ₱4,576.00
Less 5% (₱4,576 X 5%) ------------------------- 228.80
Net Price ₱4,347.20

Our total discount is equal to the first discount plus the second discount.

Total discount = ₱1,144 + ₱228.80

= ₱1,372.80

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 b. Method 2. Deduct the first discount rate from 100% and multiply the list
price by the rate obtained. Deduct the second discount rate from
100% and multiply the first balance obtained by the second
balance rate obtained.

100% - 20% (first discount rate) = 80%

List price ______________________________________ ₱5,720.00

First balance rate ---------------------------- X 80%
First balance ₱4,576.00

100% - 5% (second discount rate) = 95%

First balance __________________________________ ₱4,576.00
Second balance rate---------------------------X 95%
Net Price ₱4,347.20

Discount = List price – Net Price

= ₱5,720.00 - ₱4,347.20
= ₱1,372.80

We obtained the same result as what we got in Method 1.

c. Method 3. Convert the series of discounts to a single equivalent rate. To do

so, we first deduct the series of discounts individually from 100%
and then multiply the resulting products by themselves to give us
the net price (N) rate. If we multiply the net price (N) rate by the
list price, we get the net price. Deducting the net price from the
list price will give us the single equivalent discount. Alternatively,
we deduct from 100% to get the single equivalent discount rate.
This single equivalent rate is then multiplied with the list price to
get the discount. When we deduct the discount from the list price,
we get the net price.

100% - 20% = 80%

100% - 5% = 95%

80% X 95% = 76% (N rate)

100% - 76% = 24% (Single equivalent rate)
Take note that if we add the net price (N) rate and the single equivalent
discount rate, we will get 100%.

Discount = List price x Single equivalent discount rate

= ₱5,720.00 x 24%
= ₱1,372.80

Net Price = List price – Discount

= ₱5,720.00 - ₱1,372.80
= ₱4,347.20
Compare the results we obtained under this method with the results we got
under Method 1 and Method 2.

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