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➕pre-algebra review

Wholesale Price

Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025

Definition

The wholesale price is the price at which a manufacturer or distributor sells a product to a retailer or other reseller. It is the cost that the retailer pays to acquire the product before adding their own markup to determine the final retail price for consumers.

5 Must Know Facts For Your Next Test

  1. Wholesale prices are typically lower than retail prices because they do not include the retailer's markup.
  2. Retailers use the wholesale price as a base to determine the final retail price by adding a markup to cover their operating costs and desired profit margin.
  3. The wholesale price is an important factor in calculating sales tax, as the tax is typically applied to the wholesale price before the retailer's markup.
  4. Commissions for sales representatives are often calculated as a percentage of the wholesale price, rather than the retail price.
  5. Discounts offered by manufacturers or distributors are typically applied to the wholesale price, which then affects the final retail price.

Review Questions

  • Explain how the wholesale price is used in the calculation of sales tax.
    • The wholesale price is the base price upon which sales tax is calculated. The retailer applies the sales tax percentage to the wholesale price, and then adds the resulting sales tax amount to the wholesale price to determine the final price paid by the consumer. This ensures that the sales tax is calculated on the cost of the product to the retailer, rather than the marked-up retail price.
  • Describe how the wholesale price is used in the calculation of commissions for sales representatives.
    • Commissions for sales representatives are often calculated as a percentage of the wholesale price, rather than the retail price. This is because the wholesale price represents the actual cost of the product to the retailer, and the commission is meant to compensate the sales representative for their role in facilitating the sale at the wholesale level. Basing the commission on the wholesale price ensures that the sales representative's compensation is aligned with the true value of the product to the retailer.
  • Analyze how discounts offered by manufacturers or distributors affect the final retail price, given the relationship between wholesale and retail prices.
    • When manufacturers or distributors offer discounts on the wholesale price, this directly impacts the final retail price. Since the retail price is determined by adding a markup to the wholesale price, a lower wholesale price due to a discount will result in a lower retail price for consumers. This allows retailers to offer more competitive prices while maintaining their desired profit margins, as the discount is passed on to the end consumer through the reduced retail price. The relationship between wholesale and retail prices is crucial in understanding how discounts influence the final cost to the customer.