Ayaene " BUSINESS MATH MATHEMATICS OF BUYING Almira Alison owns Kitchen Picks, @ specialty store that carries many unique and hard-to-find kitchen, houseware, and gift items. The store purchases its inventory from a variety of suppliers at a retailer's discounted price {trade discount) and then receives an invoice from the Supplier. When the invoice is paid, it is most common for another discount {cash discount) to be taken. The owner of the store realizes how important these discounts are in contributing to the profitability of her business, Retail businesses make a profit by purchasing items and then selfing them for more than they cost. There are several steps in this process: manufacturers buy raw materials and - component parts and assemble them into products that can be sold to other manufacturers or wholesalers. The wholesaler, often called a “middleman,” buys from manufacturers or other wholesalers and sells to the retailer. Retailers sell directly to the ultimate user, the consumer, Documents called invoices help businesses keep truck of sales, while various types of discounts help them buy products at lower costs so that they can increase profits. Recent technology has enabled businesses to replace much of their paper-based business processes with electronic solutions, known collectively as electronic commerce (EC), Expect to see further changes in how business is conducted in the future. This chapter covers the > mathematics needed for working with invoices and discounts—the mathematics of buying, SECTION 1; INVOICES AND TRADE DISCOUNTS. LEARNING COMPETENCIES After studying this section, the leamer is expected to: . Be famitiar with an invoice, Understand common shipping terms. / . Calculate trade discounts and understand why they aze given. |. Differentiate between single and scree gion ch series discount separately, . Catculate each series discount Use complements 10 calolate series discounts.seein —y Almira Alison, owner of Kitchen Picks, must have a thorough understanding : of invoices, trade discounts, and cash discounts. As the owner of a small, | independent store, she must carry first-quality items, buy at the best price, i and take all earned discounts. i An invoice is a printed record of a purchase and sale, For the seller it is @ sales tavoi. and records a sale; for the buyer it is a purchase invoice and records a purchase. The invoice identities the seller and the buyer; describes the item purchased: states the quanti; Purchased; and provides the unit price of each item. In addition, the invoice shows the extension. total (the number of items purchased times the price por unit); apphics auy discounts and shipping and insurance charges; and provides the invoice total (the smn of the extension totals). Invoice ‘The following document serves as a sample sales invoice for Abram Company and asa purchase invoice for Kitchen Picks. The numbers im the quantity column multipiied by the unit price give the amount, or extension total, for each item. The total imvaice amount is the sum of the extension totals. Abram Company Quezon City Reg. VAT TIN 143-0408-0002 Sa 413 Sales Invoice Sold To Date Address ‘Terms ‘Quantity | Unit Description ce 4Buying | 175 Trade and cash discounts, discussed later in this chapter, are never applied fo shipping andl insurance charges. The applicable shipping and insurance charges must be added to the invoice (otal to find the total amount due. Understand Common Shipping Terms The shipping term FOB (free on board), followed by the Words shipping point or destination, commonly appexis on invoices. The term FOB shipping point means that the buver pays for shipping and that ownership of the merchandise passes to the purchaser prior to shipment, The term FOB destination means that the seller pays the shipping charges anxl retains ownership until the goods reach the destination. This distinction is important in the event that the merchandise is lost or damaged during shipment, The shipping term COD means cash on delivery. When goods are sent COD, the shipper delivers to the purchaser on receipt of enough cash to pay for the goods. When goods are moved over water, the shipping term FAS, which means free alongside ship, is common. Goods shipped this way are delivered to the dock with all freight charges paid to that point by the shipper. Calculate Trade Discounts and Understand Why They Are Given Trade discounts are often given to businesses or individuals who buy an item for resale or produce an item that will then be sold. The seller usually gives the price of an item as its list price (the suggested price at which the item can be soid to the public). Then the seller gives a trade discount that is subtracted fiom the list price. The result is the net cost or net price (the amount paid by the buyer). Find the net cost with the following formula.” List price Net cost = List price Trade discount or —- Trade discount Net cost ‘The terms nei cost and net price both refer to the amount paid by the buyer, However, net cost is the preferred term since this is the cost of an item to the business. EXAMPLE 1 Calculating a Single Trade Discount ‘The list price of a meat processor is P9,980 and the trade discount is 25%. Find the net cost.176 | Math in the Business World eceaenemssinenenane eee N IONE iy, SQLUTIONT Fiest find the amount of the trade discaunt by finding 25% of 9,980, Ro x 8 é * . 25% x 79980 = 25% P3980 = P2495 ‘ Subtract P2,495 from the tist price of P9,980, P3,986 list price ~_.,2495_ trade discount P7485, net cost The net cost of the food processor is P7,485, Differentiate Between Single and Series Discounts In Example 1, a single discount of 25% was offered, Sometimes two or more diseounts fre combined into a xeries or chain discount, A series discount is written, for example, as 20/10, which sneans that a 20% discount is subtracted from the list price, and from this difference another 10% discount is subtracted, Another discount of 15% could be attached to the series discount of 20/10, giving « new series discount of 20/10/15, x Se | Why Trade Discounts Change | * Price changes may cause trade discounts to be raised or lowered, As the quantity purchased increases, the discount offered may increase, The buyer's position in marketing channels (manufacturer wholesaler —> ‘etaller > consumer) may datermine the emount of discount offered. (A wholesaler would seceive alarger discount than @ succeeding retailer] Geographic location may influence the wade discount. An additional discount may be offered to increase sates in a particular area. Seasonai fluctuations in sales may influence the trade discounts offered, | * Competition trom other companies may cause the raising or lowering of trade. dcur rt | } | { I L The following advertisement indicates that the retail store reseived some very large trade dicount so that they are able to offer customers as much as 40%-60% off the tet prot These high discounts may have resulted from very large quantities of merchandise purchased or perhaps it wns the end of the season or the last of a production cycle for the manufacturer, i 1 iBuying | 177 E ALL FINE JEWELRY NOW 40%-60% OFF ORIGINAL, PRICES ~, * BRIDAL SETS, DIAMOND SOLITAIRES, GEMSTONES, BEADS & PEARLS, MEN'S JEWELRY, ANNIVERSARY BANDS, GOLD, STERLING SILVER, RINGS, BRACELETS, EARRINGS, PENDANTS, & MORE! Calculate Each Series Discount Separately ‘Three methods can be used to calculate a series discount and net cost. The first of these is by calculating discounts separately. EXAMPLE 2 Calculating'Series Trade Discounts Kitchen Picks Is offered a series discount of 20/10 on a griller with a list price of 1,500. Find the net cost after the series discount. SOLUTION 2 Fiest, multiply the decimal equivalent of 20% (.2) by P1,S00. Then subtract the product 1 (P300) from 91,500, getting P1,200. Then multiply the decimal equivalent of the second discount, 10% (.1), by P1,200. Finally subtract the product (P120) from P1,200, getting § P1,080, The result is the net cost. P1500 Istrlee i ~ 300 (ax«P4,500) <—— P1,200 120° (hx PI,200) <—~ P1,080 ——netcast After the first discount, each discount Is applied to the balance remaining after the preceding discount or discounts have been subtracted. This method demonstrates how trade discounts are applied, but this is usually not the preferred method for finding the invoiee amount. sare never added together; for example, a series discount te discounts in a serles a discount of 30%. of 20/10 is not the same ase ooJIA | Math inthe Guisiness World Use Complements to Calculate Series Discounts Hy this secon! method of Finding the net cont, first find the complement (with respect in Jor LOO) af each single dixcoimt, ‘The complement iy the number that must be added ty agiven discount pet h, For example, the compliment (with respect fo of 10%, oF 1, Ww. sieve 1 4.9 = 1, Tha complement (with respect to J) of 40%, oF 4, i6 6, Other Iypivel complements (with reanee! to 1) areas follows: mpg x eth scase an | Complement Decimal Equivalent Complement Discount with Respect to 100% of Discount with Respect to 1 . cen ana ea 10% 90% 4 : j 15% 25% 15 85 | 20% 80% 2 8 25% 75% 25 iF | 30% 70% 3 7 35% 85% 35 65 | LL 50% 50% _ 5 5 The complement of the discount is the portion actually paid, For exemaple, 10% discount reams 9DY% i paid, 25% discount menus 75% is paid, and $0% discount means 50% is paid. Mutkiply each of the complements of the single discounts to get the net cost equivalent. The net cost equivalent is the percent paid, Then multiply the net cost equivalent (percent puid) by the list price to obtain the net vest. EXAMPLE 3 Using Complemants ta Find the Net Cost Kitchen Picks Is offered a series discount of 20/10 on a griller with a list price of PL,500. Find the net cost after the series discount. SOLUTION 3 For a series discaunt of 20/10, the complements (with respect to 1) of 20% and 10% are ‘Band 9, Multiplying the complements gives .8 x 9 = -72, the net cost equivatent. (In other words, receiving a series discount of 20/10 Is the same as Paying 72% of the fist price.) Find the net cost by multiplying .72 ay the list Price of P1,500, to get P1,080 as the net cost, Write this calculation as Step 1. [series discount >> step 2. Fina complements with respect to. > : Step 3.) Multiply complermants 4 oe ee Multiply complemen equivatent, 8 in eececsdP1.500 list price -X__:72 net cost equivalent 3000 AON, P1,080.00 net cost Find the amount of the discount by subtracting the net cost from the list price. P1500 list price 1,080 net cost P 420 — amaunt of discount ‘On many calculators you can subtract the discount percents from the list price ina series calculation, 3500 [=] 20[%] [=]10[%] [£} 1,080 EXAMPLE 4 Using Complements to Solve Series Discounts The fist price of a combination gas and electric stove is P30,950. Find the net cost after a series discount of 20/10/10. SOLUTION 4 Start by finding the complements with respect to 1 of each discount. Serlas discouot ———> 20/10/10 Pipes vt A with respectto2-—> g 9 9 Multiply | \ complements ——> 8 x 9 x 9 >.648 net cost equivalent 30,950 list price ‘ x .648. net cost equivalent , 020,055.60 net cost Never round the net cost equivalent. Doing so will often result in a net cost that is incorrect. ifthe net cost equivalent in Example & had been rounded to .65 the vesulting net cost would have been P20,117.50 (.€5 x P30,950), This error of P61.90 demonstrates the importance of not rounding the net cost equivaient,[AME: ian & FECTION: . Buying | 181 Section 1 Exercises Use complements (with respect to 1) of the single discounts, find the net cost equivatents for cach of the following discounts. Do not round, Rayeep Bee Fine i. 12, B. 14, 15, 16. 17. 18, 19. 20. 10/20 20/20 — 10/10/10 15/20/25 25/5 SAS 40/30/20 20/20/10 50/10/20/5 25/10/20/10 id the net cost of each of the following list prices, Round to the nearest centavo. NCE Net Cost P4,180 less 20/20 P4480 less 25/10 P164 less 5/10 8,600 less 20/40 P12,600 less 15/25/10 3,800 Jess 20/10/20 P20 less 10/15 P9,800 less 10/10/10 20,000 less 10/40/10 12,500 less 20/20/20 Solve each of the following application problems in trade discount. Round to the nea 21. 22, rest centavo- ‘The list price of a barbell weights set is P7,999.80. If the series discount offered is 10/10/25, what is the net cost after trade discounts? Kitchen Picks purchases a tile-topped wooden kitchen table list priced at P4,800. It is available at eitbor a 10/15/10 discount or a 20/15 discount, (a) Which discount gives the lower price? (b) Find the difference in wet cost182 [Moth in the Business World LT TA NNR, How much will Coach Alfie, a children’s soccer coach, pay for three dozen sovcer| bay: if the list price is P19,200 per dozen and a seties discount of ] 0/25/30 is offerea? mM. The Alim Store offers a series trade discount of 30/20 to its regular customers. Al & now employee in the billing department, understood the 30/20 terms to mean 50% and computed this trade discount on a list price of P5440. How much difference gig this error make in the ainount of the invoice?Buying | 183 - SECTION 2: SINGLE DISCOUNT EQUIVALENTS _ LEARNING COMPETENCIES ‘ Afler studying this Section, the teamer ig expected to: 1. Express 4 series discount as an equivalent single discount, 2, Find the net cost by multiplying the tist price by the complements of the single discounts in a series, 3. Find the list price given the series discount and the net cost, Express a Serles Discount as an Equivatent Single Discount net cost equivalent from \ (1 = 100%). The result is the single discount that is the equi ies di is expressed as « percent. Finding the Single Discount Equivalent Single discount equivaient = 1-Net cost equivalent EXAMPLE 1 Finding a Single Discount Equivalent if the Alger Energy, Inc., offered a 20/10 discount to wholesale account its on all heating, ventilation, and cooling systems, what would the single discount equivalent be? SOLUTION 1 Series discount -——> 20/10 v with respect to1 | ® v “ Find complements. > 3 | Multiply complements ——> 8 x 9 'Z_netcost equivatent 1.00 base (100%) 72_ net cost equivalent (remains) 28. of 28% was discounted : The single-discount equivatent of a 20/10 series discount is 28%. ae184 | Math in the Business World Find the Net Cost by Multiplying the List Price by the’ © ue Complements of the Single Discounts in a Series ‘Net cost can be found by multiplying the list price by the complements of each of the single discounts in a series as shown in the next example. EXAMPLE 2 Finding the Net Cost Using Complements . . ¢ The list price of an oak dinette set is P4,950. Find the net cost if trade discounts of 20/15/5 are offered, SOLUTION 2 Multiply as follows. Netcost = List price x Complements of individual discounts | Netcost = P4950 x .8 x BS x 95 . | 20/15/5 | Netcost = 3,197.70 The net cost of the oak dinette set is P3,197.70, a ‘The calculator solution to this example is 4.950 [x] 8 [=| 8s [x] .95 [=] 3,197.70 ‘ \ Find the List Price Given the Series Discount and the Net Cost Sometimes the net cost after trade dis counts is given, along with the series dis id the list price must be found. 6 mamaria EXAMPLE 3 Solving for List Price Find the list ptice of a food processor that has a net cost of P2,432 after trade discounts of 20/20. SOLUTION 3 Use a net cost equivalent. Start by finding the percent paid, using complements.Series discount —5. 95 99 toy . Complements ‘8 x 8.64 remains (net cost equivalent) "with respecttoa gn" As the work shows, .64, or 64%, of the list price was paid. Find the tist price with the standard percent formula. 2 % of something is something Check the answer. 64% of list price P2,432 Rate x Base Portion Rx 8 =P 3,800 st price = 750 (23,800) or 3,040 608 (.2™P3,040) nf . - is ae = P3,800 {ist price rae set ‘The list price of the food processor is 3,800, EXAMPLE 4 Solving for List Price Find the dist price of a coffeemaker havin, 1g 3 Series discount of 10/30/20 and a net cost of P4134. SOLUTION 4 Use complements to find the percent paid. Series discount ———__» 10/30/20 tld (2.7 x 8 =.504 remains (percent paid) Comptements with respect 102 Therefore, 804 of the list price is P1,134. Use the formula for base . P P4134 eeaar =e > &P2,2501 | * ist price The list price of the coffeemaker Is P2,250. Check this answer asia the Previous example. ieSeetion 2 Exercises Find the net i fanjacan , a cost equivalent and the single discount equiv: alent of each of the following cs discounts. Do not round net cost equivatents or single discount equivalents. js Net Cost Single Discount L Seales Discount Equivatent Equivalent 2 0/10 - 3B 20/15 : ee 4. 1073020 te 5. 20/10/1020 Sear Kind the list price, given the net cost and the series discount. & Net cost PS,184: trade discount 20/10 7 Net cost P15,595.20; trade discount 5/10/20 se Solve each of the following application problems in trade discount. Round to tke nearest centavo. * 8. A microwave oven has a list price of P2,995 ands offered to wholesalers with a series discount of 20/10/10. The seme oven is offered to Kitchen Picks (a retailer) with a series discount of 20/10. (a) Find the wholesaler’s price. (b) Find Kitchen Picks” price. (¢) Find the difference between the two prices. 9, Alcka Video offers a series discount of 20/20/20 while Aloysius Video offers a series discount of 40/10/5. (a) Which discount is higher? () Find the difference. 10. Plants & Pots paid a net price of P4,144 for a shipment of poited plants after a trade discount of 30/20 from the list price. Find the lis: price. i tive baitery charger with a list peice of P2,959 ig sold by a wholesaler at a » whet of 2,219, Find the single trade discount rate being offered. Round 10 the nearest tenth of a percent,. . Buying | 389 ——A cate enpisnnesencemnnenesnenmennsen ea < SECTION 3: CASH DISCOUNTS: ORDINARY DATING METHOD LEARNING COMPETENCIES, After studying this section, the leamer is expected to: 1, Caloulate net cost after discounts, 2. Use the ordinery dating method. 3. Determine whether cash discounts are eamed, f | At Kitchen Picks, Almira Alison pays close attention to all invoices received from suppliers. Besidi #5 the fact that invoices can frequently have errors in them, she wants to be certain that all of these invoices are paid early enough to | Teceive any additional cash discounts that ara offered, She prides herself that | has never missed a final due date and has said, “Vt never overdue on an account,” ss a - 2 a Calculate Net Cost after Discounts Cash discounts are offered by sellers 10 encourage prompt payment by customers. In offect, the seller is saying. “Pay me quickly, and receive a discount” Busineeses often borrow money for their day-to-day operation, Immediate cash payments from customers decrease the need for borrowed money ‘To find the net cost when a cash discount is offered, ‘begin with the list price and subtract any trade discounts. From the result, subtract the cash discount.” Use the following. formula. Finding the Net cost Net cost = (List price ~ Trade discount} ~ Cash discount A cash discount is novor allowed on shipping and insurance charges, If an invoice amount includes shipping and insurance charges, subtract these charges fist, before 2 cash discount is taken, These charges are then added back to find net cost afte the eash discount is subteacted. iscount appears on the invoice, under TERMS, which can be found in fheayme st oh (ep citiee OF this AsSSre invoice. ‘Many companies using automated billing systems state the exact amount of the cash discount on the iny 3 1 calculations on. the pact of the buyer. Not all businesses do thi iinporire to know how to determino cash discounts, ice. This eliminates hawever, so it isAmari Company Quezon Cty ‘Rag. VAT TIN 125-0613-0002 Sales Invoice No 0613 Sold To, Li ee eee Address Terms Received the 2bove articles in good condition, Gaston Sgn — Use the Ordinary Dating Method There are many methods for finding cash discounts, but nearly all of these are based on the ordinary dating method. The method discussed here is the most common in use today. The ordinary dating method of cash discount, for example, isexpressed on-an invoice as 2/20, 0/38 or 2/10, net 30 and is read “two ten, net thirty.” The first digit is the rate of discount (2%), the sevoad digit is the number of days allowed io take the discount (10 days), and 1/36 (net 30) is the {oul number of days given to pay the invoice in full it the buyer does not use the eas Ciscount. If this invoice is paid within 10 days from te dare ofthe invoice, a 2% discouat is subtracted fromn the amount owed. If payment is made between the [1th and 30th days fom the invoice date, the entire amount of the invoice is tue, After 30 days from the date OF the invoice, the invoice is considered overdue and may be subject 10 a fate charge. To tind the due date of f an invoice, use the number of days in each moath, given in the following chart,fal Beginning with the lewolce date, January 2, the last date for tating the: discoun January 12 (2 +40}, ae ‘The net payment date is February 1 (31-= 2 # 29 days remaining in Janudty pha ty In February.) EXAMPLE 2 Finding the Amount Due on an invoice ‘An inwoice received by Kitchen Picks for P8,400 is dated luly 1 and offers terms 2/10, n/39 i the invoice is bard on July & and the shipping and ineurance charges, which were 0%, shipping point, are P187, find the total amount due. SOAUTION2 oo The ewoice was paid 7 days after its date (8 ~ 1» 7); therefore, the 2% cash discount is taken, 2 The 2% cash discount is found on 98,400. ‘The discount to be taken is P8,400 x .025 Piss 3. The cash discount js subtracted from the invoice amount to determine the amour due, 8,400 invoice amount ~ P168 cash discount (2X) = P8,232 amount due 4 The shipping and insurance charges are added te find the total amount due, 8,232 amount due + P187 shipping and insurance = P8,419 total amount due. When the terms of an invoice are 2/10, only 98% (100% ~ 2%) of the invoice amust be aid during the first 10 days. tn Exampie 2, the amount due may be found as follows. P8,400 x .98 = P8,232 woe t | t bwvoice amount * amount due complement Ie A cash discount Is never taken on shipping and insurance charges. Be certain thet Shipping and insurance charges are excluded from the invoice amount before calculating the cash discount. Shipping and insurance charges must then be added bart into find the total amount due,ee _|SCORE: : | PROFESSOR: Section 3 Exercises Find the final discount date and the net payment date for each of the following. Bac Tame a Pe ‘1 7 “1 Maya 210, w30 PacruntDae Payment Date 2. Aprill2 3/10, net30 : 3. Sepull 420,130 _ 4 July 3115, net 20 Solve for the amount of discount and the total amount due on each of the following invoices. Add shipping an d insurance charges if given, . Date ‘Shipping Amount Total Invoice Invoice Invoice and of Amount Amount Daie Terms Paid Ansurance Discount Due $. P8518 Nov.2 2/10, net 30 Nov. 11 P872 6 6,610 Mar.8 6/10, 1/30 Mat. 14 P439 i 7. P7807 MayS net 30 June 1 PS * Solve each of the following application problems. Round to the nearest centave. 8, Kitehen Picks offers cash discounts of 4/10, 2/20, net 30 to alt catering companies. An invoice is dated une 18 amounting to P4,635.40 andis paid on July 7. Find theamount needed to pay the invoice. 9. Amal Petrochemicals offers customers a trade discount of 10/20/5 on all products, with terms of net 30. Find the customer's price for products with a total list price of P2,530 if the invoice was paid within 30 days. 10. Aninvoice is dated January 18 and offers terms of 6/10, 4/20, 1/30, 9/50. Find (a) the three final discount dates and (b) the net payment date, ount of an invoice from Aline Creamery is P1,780 oth terms 2/10, 1/15, net MW ie The invoice is deed March &, (a) What amount should be prid ey Marc 26? (b) What amount should be paid on April 32