MAT112 Business Mathematics

CHAPTER 7

TRADE AND CASH DISCOUNTS

LEARNING OBJECTIVES

After completing this chapter, students should be able to:

 explain the trade discount terms
 calculate the trade discount and the net price
 explain chain discount
 find a single discount rate that is equivalent to a chain discount rate
 explain cash discount terms
 calculate cash discount
 solve problem involving trade and cash discounts
 calculate net payment and total payment.

TRADE DISCOUNT

 List Price
 The price that offered before trade discount.
 Net Price
 The price that the retailers pay after reduction in prices.
 Trade Discount
 The difference between the list price and the net price.
 It must be calculated on the list price.
 It must be based on the cost of goods, excluding any other costs.
 Trade Discount Rate
 A manufacturer normally quotes a discount rate in percentage to the retailer.
 Formula:

D  LP  d OR D  LP - NP

NP  LP 1 - d  OR NP  LP - D

LP  List Price (in RM)

NP  Net Price (in RM)
D  Trade Discount (in RM)
d  Trade Discount Rate (in %)

 Example 1: The list price of a camera is RM3,200. A trade discount of 25% is offered. What is the net
price of the camera?

 Example 2: Nadia Shoppe want to buy a pair of shoe listed at RM215. The wholesaler offers a
discount of 20% on the shoes it sells. Calculate the net price.

NZS UiTMJ 1
 MAT112 Business Mathematics

CHAIN DISCOUNT

 Multiple discounts are offered to the retailers on the same goods by the manufactures or wholesalers.
 Each discount rate is calculated on the successive net amount.
 
two discount rates d1 % and d 2 % 
NP  LP1  d1 1  d 2 

the net price for a chain discount (for an item listed at L ringgit less d1 % and d 2 % )
 three discount rates d1 % , d 2 % and d 3 % 

NP  LP 1  d1 1  d 2 1  d3 


the net price for a chain discount (for an item listed at L ringgit less d1 % , d 2 %
and d 3 % )

 Example 1: Find the net price and the total discount for a motorcycle that listed at RM8,000 less 25%
and 15%.

 Example 2: Izzat Electrics sold a refrigerator at RM4,550 list price and offered chain discount of 20%,
10% and 5%. Find the net price of the refrigerator.

 Example 3: The net price of a computer table after discounts of 10% and X% was RM598.50. If the
total discount was RM101.50, find
(a) the list price of the table
(b) the value of X.

SINGLE DISCOUNT EQUIVALENT TO CHAIN DISCOUNT

 two discount rates d1 % and d 2 % in the chain discount

d  1  1  d1 1  d 2 
 three discount rates d1 % , d 2 % and d 3 %  in the chain discount

d  1  1  d1 1  d 2 1  d 3 

 Example 1: Find the single discount equivalent of 14%, 10% and 6%.

 Example 2: The net price of a handphone is RM1,256.85 that is after deducting the chain discount of
10%, X% and 2% from a list price of RM1,500.
(a) Find the value of X.
(b) Find the single discount rate that is equivalent to the chain discount.

NZS UiTMJ 2
 MAT112 Business Mathematics

CASH DISCOUNT

 Wholesalers, manufactures and even retailers offer reductions on the amount due to the customers
who pay their bills within a specified time period.
 To encourage prompt payment of bills.
 The credit terms which comprise the cash discount rate and the cash discount term (or credit term)
are usually shown in the invoice.
 If the bill is settled within the specified period, the buyer needs only to pay the net amount after
deducting the cash discount from the amount in the invoice.
 Example: Cash Discount term / Ordinary Dating
(i) net 30 or n/30
 no cash discount offered and payment must be made within 30 days of the invoice
date.

(ii) 3/10, net 20

 supplier offer 3% discount if the invoice is paid within 10 days or the full amount
must be paid in 20 days.

(iii) 2/10, 1/30, n/60

 supplier offer 2% discount if the invoice is paid within 10 days of the date of
invoice, 1% discount offered or deducted if the invoice is paid within 11 th to 30th day
or full amount must be paid in 60 days. After 60th day, the bill is overdue. OR
 If the payment made from 1st until 10th day, it will get 2% cash discount rate.
If the payment made from 11th until 30th day, it will get 1% cash discount rate.
If the payment made from 31st until 60th day, there is no cash discount rate offered
and need to pay full payment.

FORMULA

 Trade Discount and Cash Discount offered

D  LP  d

NP  LP 1  d1 1  d 2 ...1  d n 

CD  Net Price  Cash Discount Rate

 NP  d

Payment  LP  Trade Discount  Cash Discount

 LP  Trade Discount  Cash Discount 
OR
Payment  LP 1  d 1 1  d 2 ...1  d n 1  d 

 If no Trade Discount offered (just Cash Discount offered)

NP  LP

 If no Cash Discount offered (just Trade Discount offered)

Payment  NP

NZS UiTMJ 3
 MAT112 Business Mathematics

 If involve other cost (e.g: transportation cost, insurance)

Payment  Payment  Other Cost

LPnew  LP  Other Cost

 Example: Invoice Date  20/04/2015

LP  RM10,000
d  20%
1
d  10%
2
3/15, 2/25, n/40

Calculate the payment.

Solution:

(i) Invoice Paid  02/05/2015

Months Exact Time

Apr 10 (30-20)
May 2
Total 12 days

NP  LP 1  d1 1  d 2 1  d 
 10,0001  0.21  0.11  0.03
 RM 6,984

(ii) Invoice Paid  14/05/2015

Months Exact Time

Apr 10 (30-20)
May 14
Total 24 days

NP  LP 1  d1 1  d 2 1  d 
 10,0001  0.21  0.11  0.02
 RM 7,056

(iii) Invoice Paid  28/05/2015

Months Exact Time

Apr 10 (30-20)
May 28
Total 38 days

NP  LP 1  d1 1  d 2 
 10,0001  0.21  0.1
 RM 7,200

NZS UiTMJ 4