Chapter 7 Mathematics of Selling

Recreational Equipment, Inc. (REI) is the nation's largest consumer cooperative. The cooperative movement has its roots in England. In the 1800s, the Rochdale Equitable Pioneers Society of Rochdale, England instituted the cooperative's founding principles. Each active member of a cooperative is entitled to one vote, a proportional distribution of profits, competitive pricing, intelligent expansion, and continuous education. Members of the REI cooperative enjoy the members-only special prices, the advanced sales notices, the bike and ski shop labor services, and the rental gear rates.

REI was founded as a consumer cooperative to ensure quality products and service. This cooperative has evolved from a group of 23 Pacific Northwest mountaineers in 1938 to 1,420,947 active members as of 1996. By 1996, REI operated 49 retail operations, 47 full-sized stores nationwide, and a domestic and international mail-order business. The first 23 members each provided one dollar, and at the end of the first year, 82 members received dividends.

In 1993, REI founders Lloyd and Mary Anderson were inducted into the NCBA's Cooperative Hall of Fame. The Andersons were recognized for their long-standing commitment to cooperative business principles. Lloyd Anderson started REI after he ordered an ice axe and was disappointed by its poor quality and high price. Determined to do something about it, he found his own supplier of top-quality mountaineering products. Soon word spread, and the rest is history.

In 1998 and 1999, Fortune magazine named REI as one of "The 100 Best Companies to Work for in America." Consumers can look forward to the best when it comes to REI-crafted gear. Consumers get outstanding performance and a 100 percent guarantee from REI products.

All this information and more can be found at www.rei.com.

Problem:

Preparation:

In preparation for this problem,

• Research the cooperative movement
• Locate the REI on-line catalog

1. The beginning of the modern cooperative movement can be traced back to the town of Rochdale, England. A band of 28 working people formed the Rochdale Equitable Pioneers Society. Desperate over low pay and high cost of living, these workers invested their money, time, and energy to open the first consumer-based cooperative. Research the cooperative movement on the Internet. Some Web sites of interest are: www.campus-coop.org/principles.html, www.dorsai.org/~coop/wtsacoop.html, www.ruraltelephone.com/coop/index.htm. Your research should not be limited to the listed sites. They are suggested as a starting point. Write a one page paper to demonstrate your understanding of the topic. Consider the following in your research:
   1. Explain what the Rochdale Equitable Pioneers Society and/or cooperative movements are.
   2. Find the approximate number of cooperatives in operation today.
   3. Name some familiar cooperative enterprises like Ace Hardware.
   4. Name some of the different types of cooperatives.

2. Regardless of the form of business ownership (cooperative, partnership, corporation, or sole proprietorship), a determination of the appropriate selling price for goods and services must be made. The selling price has to be attractive to consumers but still cover expenses and provide a reasonable profit. Chapter 7 looks at the mathematics of selling. Apply your knowledge of selling to perform the following computations:
   1. REI buys Windpack Jackets from a company in Nevada for $22.50 each. If they are sold for $39.95, what is the amount of the markup?
   2. It cost an REI supplier $56 to make the men's North Face hydrenaline long jacket. If the supplier sells the jacket to REI for $79.40 each, what is the markup and the percent of markup based on cost?
   3. If REI sells the hydrenaline long jacket mentioned above for $112, what is the markup and the percent of markup based on selling price?
   4. REI has an Outlet Web site that offers merchandise marked down for various reasons. If REI marked down a jacket and sold it for $48, a $12 difference from the original selling price, what is the original selling price and the markdown percent?
   5. If REI originally sold jackets for $155 each and the jackets were marked down 40% for a clearance sale, what is the sale price of the jackets?

3. Price adjustments are made for several reasons. For instance, the cost of the service or product may have increased or decreased, the demand/supply of a product may have changed, the competition might have changed, or poor management decisions could have been made in purchasing. Whatever the reason, markups and markdowns of services and products occur. The following are categories of price adjustments based on changing situations. With the aid of the Internet, give a brief explanation and/or example of each, along with the Web site address from which the information was gathered.
   1. Discount and Allowance
   2. Discriminatory
   3. Psychological
   4. Value
   5. Promotional
   6. Geographical

4. Numerous factors affect profits. Cost of merchandise, operating expenses, and local competition are a few of these factors. Another factor affecting profit margins is the rate of inventory turnover. Using the Internet as a research tool, answer the following:
   1. Explain how the rate of inventory turnover affects profits.
   2. A local sporting-goods store has no local competition. Therefore, it sets its prices high and makes a large profit. Discuss the possible effects of this policy.

© Copyright 2000 Addison Wesley Longman, Inc.