Financial Impacts of Markup Choices

University:
Stanford University
Course:
ECON 1 | Principles of Economics
Academic year:

2024
Views:

391

Pages:

1
Author:

Waktu S.

Labor Cost Markup Some off-premise caterers add the labor cost to the food cost, and then apply a markup factor. In our example, the combined food and labor cost, or prime cost, is $2,750 ($1,110 + $1,640). FOOD AND MARKUP SELL PRICE GROSS LABOR COST FACTOR MARGIN $2,750 $2,750 $2,750 1.5 2 2.5 $4,125 $5,500 $6,875 $1,375 $2,750 $4,125 Please notice in this prior example that the markup factors produce greater margins since we are not only marking up food cost, but also labor cost. While some caterers mark up the food and labor, others simply mark up the food and charge for the labor at cost, or slightly above cost. Off-premise caterers who own their equipment charge anywhere from the same price as the local rental equipment dealers down to nothing. Most, on the aver-age, charge somewhere in between these two extremes. For example, on a small home party they may charge the full local retail price; but when bidding on a large event they may choose to charge little or nothing for the equipment, content with profits from the food and other areas. Off-premise caterers report a similar pricing strategy with rental equipment from dealers. Some may charge their discounted price, plus a small allowance for losses, while others may apply liberal increases to the prices charged them by the dealers. As with our example, please note the financial impact of various pricing strategies: EQUIPMENT DISCOUNTED SELL PRICE MARGIN LIST PRICE PRICE $2,000 $1,800 $1,800 $0 2,000 1,800 2,000 200 2,000 1,800 2,200 400