Trade Discountq.pptx

hapter : Trade and Cas
iscounts

Price fiow
Cleaves/’Hobbs! Business Math. 7e Copyright 2005 dy Pearson Education, I«c. Upper Saddle River, NJ 07458 All Rights Reserved
Consumer
List Price
Retailer Wholesaler
Net Price Net Price
$56 $40
Manufacturer
Cost
$80
30%
off list
50%
off list
$20
6

8.1 Trade Discount and Net
Price
2
Find the trade discount using a single trade
discount rate; find the net price using the trade
discount.
• Find the net price using the complement of the
single trade discount rate.

Key Terms
4
Net price: the price the manufactureror
retailer pays or the list price minus the trade
discount.
Discount rate: a percent of the list price.

Look at this exampie.
Trade discount = rate x list price
Find the trade discount for a lamp that retails at
$140 and has a trade discount rate of 45O
x.
Trade discount = 0.45 x $140
• Trade discount = $63
What does the $63 mean?
That the wholesaler or retailer will not pay $63
of the $140 list price.
8

Key Terms
• Suggested retail price, catalog price, list
price: three common terms for the price which
the manufacturer suggests an item be sold to
the consumer.
Trade discount: the amount of discount that
the wholesaler or retailer receives off the list
price or the difference between the list price and
the net price

Prod
flow
Manufacturer Wholesaler Retailer Consumer

How fi the trade iscou
• Using a single trade discount rate:
1. Identify the single discount rate and the list
price.
2. Multiply the list price by the single discount
rate.
• Trade discount rate x list price

Try theseexamples.
Find the trade discount for a porcelain vase
that lists for $90 and has a trade discount of
70O
›t.
• $63
• Find the trade discount for styling gel that lists
for $13 and has a trade discount of 40%.
• $5.20

Try these examples.
• Find the net price of a camera that lists for $300
and has a trade discount of 42O
›t.
$174
Find the net price of a down jacket that lists for
$150 and has a trade discount of 20o›9.
$120
]2

Find the net price
• Using the complement of the single trade
discount rate.
• Complement of percent the difference
between 100O
›t and the given percent.
Examples:
The complement of 30ot is 70ox.
The complement of 55% is 45O
›é
The complement of 5O
›9is 95%.

Try theseexamples.
Find the net price of a set of golf clubs that lists
for $1,500 and has a trade discount of 15O
›9.
$1275
• Find the net price of a bicycle that lists for $102
and has a trade discount of 30O
A.
• $71.40
IS

Find 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.
Trade discount = Rate x List Price
Net Price = List Price —Trade discount

• Find the net price of a software program that
lists for $220 and has a trade discount of 35O
›t.
Trade discount = 0.35 x $220 = $77
Net price = List price —Trade discount
Net price = $220 - $77 = $143

How to find the net price
14
1. Find the complement: subtract the single trade
discount from 100%.
2. Multiply the list price by the complement of the
single trade discount.
Example:
Find the net price of a coffee maker that lists
for $20 and has a trade discount rate of 20o›t.
80O
t is the complement of 20%
NP = $20 x 0.80 = $16

8.2 Net price and trade
discount series
Find the net price, applying a trade
discount and using the net decimal
equivalent.
Find the trade discount, applying a trade
discount series and using the single
discount equivalent.
16

Trade discount series
Trade discount series or chain discount:
additional discounts that are deducted one after
another from the list price.
• Reasons to use discount series include:
To encourage volume purchases
To promote special or seasonal items
To entice a new client

Can you add the discounts together
and apply it as one?
If the item has three discounts of 20O
›9, 10O
›9 and
5O
›t, can you add them together and apply a 35%
discount?
No, because each time you apply the additional
discount, the base becomes smaller.
Directly applying a 35% discount would result in
a final price of $260.
$260 1 $273.60

The net decimai equivalent
20
• To find the net decimal equivalent of a trade
discount series:
1. Find the net decimal equivalent: multiplythe
decimal form of the complementof each
trade discount rate in a series.
2. Multiply the list price by the net decimal
equivalent.

29
Find the net price of an order with a list price of
$600 and a trade discount series of 15/10/5.
Find the complement of each of the trade
discount rates.
• They are 0.85, 0.90 and 0.95.
Multiply them together.
• The net decimal equivalent is 0.72675
Apply the net decimal equivalent to the list price.
NP = 0.72675 x $600 = $436.05

Try theseexamples.
¥2
• A tire lists for $85 and has a trade discount
series of 10/10/5. Find the net price.
• $65.41
Asilk tie lists for $125 and has a trade discount
series of 20/10/5. Find the net price.
• $85.50

Trade discount series step by
step
18
An item lists for $400 and has a discount of
20%. $400 x 0.2 = $80 $320
An additional discount of 10% is taken on the
previous price.
$320 x 0.1 = $32 $288
An additional discount of 5O
›t is taken on the
previous price.
$288 x 0.05 = $14.40 $273.60
$273.60 is the final price.

Look at is exampie
(continued)
• Subtract the net decimal equivalent (0.504) from “1” to
find the single discount equivalent.
The result is 0.496 (or 49.6%).
The single discount equivalent is 0.496; apply it to the
price of $1,500.
TD = $1,500 x 0.496 = $744
The trade discount on the fax machine is $744.
[That is the amount that you do not pay.]
26

nd the trade iscou
By applying a trade discount series and using the
single discount equivalent
1. Find the single discount equivalent by subtracting
the net decimal equivalent from “1.”
2. Multiply the list price by the single discount
equivalent.
TD = single discount equivalent x list price

Look at this exampie
• Use the single discount equivalent to calculate
the trade discount on a $1,500 fax machine
with a discount series of 30/20/10.
Find the net decimal equivalent by multiplying
the complements of each discount rate. 0.70 x
0.80 x 0.90 = 0.504
To find the single discount equivalent, subtract
the net decimal equivalent from “1.”
25

8.3 Net amount and the
cash discount
2¥
Find the cash discount and the net amount using
ordinary dating terms
Interpret and apply EOM terms
Interpret and apply ROG terms
Find the amount credited and the outstanding
balance from partial payments
Interpret freight terms

Key Terms
24
• Single discount equivalent: the complement
of the net decimal equivalent. It is the decimal
equivalent of a single discount rate that is equal
to the series of discount rates.
Total amount of a series of discounts = single
discount equivalent x list price
Net amount you pay = net decimal equivalent x
list price

Use the complement to find the net
amount of an invoice
An invoice of $500 which reads 2/10 N/30 tells
you that a discount of 2% is available if the
payment is made within 10 days.
• To calculate the net amount directly, use the
complement of the discount (in this case, 0.98)
and multiply it by the total amount.
• $500 x 0.98 = $490 = net amount to be paid
32

“ThiJy days has September...”
To calculate the exact number of days for a cash
discount, you must know how many days are in
each month, so if you are not sure...learn them.
• There are two tips in the text to help you.

8.3.1 Find the cash discount and
the net amount
28
Bills are often due within thirty days from the
date of the invoice.
To encourage prompt payment, companies offer
an incentive of a cash discount if the invoice is
paid within a specified period.
“2/10 n/30” means “take a 2% cash discount if
paid within 10 days; pay the net price if covered
within 30 days.”

Look at this exampie
• Find the cash discount for an invoice dated
December 1 for $750 with terms of 2/10 n/30.
If the invoice is paid on December 9 h, for
example, the payment would include the
discount and the amount would be $735.
If the invoice is paid on or after December 11th,
the amount to pay would be $750.
29

Try these exampies
Annie's Plants has received an invoice for
$450.00 for potting soil dated November 3 with
terms of 5/10 N/30. If the invoice is paid on
November 12, how much would Annie's pay?
$427.50
What if the bill is paid on November 30?
They would not be able to take the discount and
would have to pay the full amount of $450

An EOM exception!
An exception occurs when the invoice is dated
on or after the 26 of the month.
The discount would be applicable until the
specified day of the month following the month
of the invoice.
Example An invoice dated April 27 with terms
of 3/10 EOM would be eligible for the discount if
the bill is paid on or before June 10.
36

Try is exampie
• Sycamore Enterprises received a $1,248 bill for
computer supplies dated September 2 with sales terms
of 2/10, 1/15 n/30. A SO
A penalty is charged after 30
days. Find the amount due for the following dates:
September 12, September 15, October 1, October 3
• September 12 (2% discount) = $1,223.04
•
September 15
October 1
(1O
›t discount)
(no discount)
= $1,235.52
= $1,248.00
a October 3 (5O
›t penalty) = $1,310.40

8.3.2 interpret and apply
EOM (end-of-month) terms
Another type of sales term are EOM terms.
For example, an invoice might be 2/10 EOM,
meaning that a 2O
›9discount is allowed if the bill
is paid during the first 10 days of the month after
the month in the date of the invoice.
If the invoice is dated November 19, then the
2ox discount is allowed up to and including
December 10.
34

8.3.3 Apply ROG
(receipt of goods) terms
A cash discount is allowed when the bill is paid
within the specified number of days from the
receipt of goods, not from the date of the
invoice.
Multiply the invoice amount times the
complement of the discount rate.
• Sales terms stating 1/10 ROG mean that a 1O
›t
discount is applicable 10 days after the goods
are received; not when the invoice is dated.

Try this exampie
• Judy's Fine Jewelry received an invoice for 50
invoice is dated April 1. She received
silver charm bracelets for a total of $550. The
the
bracelets on April 6. If the terms are 3/10 ROG
and the invoice is paid on April 11, how much
will she pay?
• $533.50
38

Applying the percentage formula
In applying the percentage formula to find the
amount credited, the rate is the complement of
the discount rate; the percentage is the partial
payment; and the amount credited is the
base.
B = P/R
• Sometimes a customer cannot pay the entire
amount of an invoice, but takes advantage of a
discount period to apply that discount to a part of
the total due.

Look at these examples
35
An invoice dated March 4 with terms of 3/15
EOM would mean that a 3O
›t discount would be
applicable until April 15.
An invoice dated August 25 with terms of 5/10
EOM would mean that a 5% discount would be
applicable until September10.
An invoice dated December 2 with terms of 2/20
EOM would mean that a 2% discount would be
applicable until January 20.

Look at is exampie
a If the Semmes Corporation received a $875 invoice with
terms of 3/10 n/30 and could not pay the full amount
within 10 days, but chose to send in a $500 partial
payment on Day 5, what amount was credited to their
account?
B (amount credited) = P (partial payment) divided by R
(complementof the discount rate)
B = 500/0.97= $515.46 = amount credited
• The balance would be the difference.
• $875 - $515.46 = $359.54 = balance
41

8.3.4 Find the amount credited and
the outstanding balance
Partial payment: a payment that does not
equal the full amount of the invoice less any
cash discount.
Partial discount: a cash discount applied only
to the amount of the partial payment.
Amount credited: the sum of the partial
payment and the partial discount.
• Outstanding balance: the invoice amount
minus the amount credited.

Remember that cash discounts do
not apply to shippi costs
Example: The Home Doctor received a shipment of hand
tools with an invoice total of $800 (including shipping) and
sales terms of 3/10 n/30. The invoice is dated June 2 and
the shipping costs are $125. Calculate the payment of the
invoice if it is paid on June 10.
Subtract the shipping charges: $80&125 = $675
a Apply the discount: $675 x 0.97 = $654.75
Add the shipping charges back in:
$654.75 + 125 = $779.75= amount to be paid

More key terms
FOB destination: “free on board” at the
destination point. The seller pays the shipping
when the merchandise is shipped.
Freight paid: The seller pays the shipping
when the merchandise is shipped.
Prepay and add: The seller pays the shipping
when the merchandise is shipped; but, the
shipping costs are added to the invoice for the
buyer to pay.
43

8.3.5 Interpret freight terms
#2
Bill of lading: shipping document that includes
a description of the merchandise, the number of
pieces, weight, name of the consignee (sender),
destination, and method of payment of freight
charges.
FOB shipping point: “free on board” buyer pays
for shipping when shipment is received.
Freight collect: The buyer pays the shipping
when the shipping is received.

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