CH08 PPT

8.
1 Single Trade Discounts
 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.
Business Math, Eighth Edition © 2009 Pearson Education, Inc. Upper Saddle River, NJ
Cleaves/Hobbs 07458 All Rights Reserved
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
Key Terms
 Net price: the price the manufacturer or
retailer pays or the list price minus the
trade discount.
 Discount rate: a percent of the list price.
Product flow
Manufacturer Wholesaler Retailer Consumer
Price flow
Consumer Retailer Wholesaler Manufacturer

List Price Net Price Net Price Cost
$80 $56 $40 $20
30% 50%
off list off list
How to find the trade discount
 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
Look at this example
 Trade discount = rate x list price
Find the trade discount for a cd player that
retails at $120 and has a trade discount rate of
35%.
 Trade discount = 0.35 x $120

 Trade discount = $42
 What does the $42 mean?
 That the wholesaler or retailer will not pay $42
of the $120 list price.
Try these examples
 Find the trade discount for a rug that lists
for $290 and has a trade discount of 30%.
 $87
 Find the trade discount for styling gel that

lists for $18 and has a trade discount of
15%.
 $2.70
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 desk that lists for
$320 and has a trade discount of 30%.
 Trade discount = 0.30 x $320 = $96
 Net price = List price – Trade discount
 Net price = $320 - $96 = $224
Try these examples
 Find the net price of a camera that lists for
 $132
 Find the net price of a patio table that lists

for $460 and has a trade discount of 20%.
 $368
Find the net price
 Using the complement of the single trade
discount rate.
 Complement of percent: the difference
between 100% and the given percent.
 Examples:
 The complement of 30% is 70%.
 The complement of 55% is 45%
 The complement of 5% is 95%.
How to find the net price
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 20%.
80% is the complement of 20%
NP = $20 x 0.80 = $16
Try these examples
 Find the net price of a set of golf clubs that
lists for $1,500 and has a trade discount of
15%.
 $1275
 Find the net price of a bicycle that lists for

 $71.40
8.2 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.
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
Trade discount series step by step
 An item lists for $400 and has a discount of
20%. $400 x 0.2 = $80; $400 - $80 = $320
 An additional discount of 10% is taken on the
previous price.
$320 x 0.1 = $32; $320 - $32 = $288
 An additional discount of 5% is taken on the
previous price.
$288 x 0.05 = $14.40; $288 - $14.40 = $273.60
 $273.60 is the final price
Can you add the discounts
together and apply it as one?
 If the item has three discounts of 20%, 10%

and 5%, 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 ≠ $273.60
The net decimal equivalent
 To find the net decimal equivalent of a
trade discount series:
1. Find the net decimal equivalent: multiply
the decimal form of the complement of
each trade discount rate in a series.
2. Multiply the list price by the net decimal
equivalent.
 Find the net price of an order with a list price of
$800 and a trade discount series of 20/10/5.
 Find the complement of each of the trade
discount rates.
 They are 0.80, 0.90 and 0.95.
Multiply them together.
 The net decimal equivalent is 0.684
 Apply the net decimal equivalent to the list
price.
 NP = 0.684 x $800 = $547.20
Try these examples
 A tool set lists for $325 and has a trade
discount series of 20/10/10. Find the net
price.
 $210.60
 A dress shirt lists for $125 and has a trade

discount series of 15/10/7.5. Find the net
price.
 $88.45
8.2.2 Find the Trade Discount
To find the trade discount 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
Key Terms
 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 single discount equivalent to
calculate the trade discount on a $3,200
lawn tractor 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.”
Look at this example (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 $3,200.
 TD = $3,200 x 0.496 = $1,587.20
 The trade discount on the tractor is $1,587.20.
That is the amount that you do not pay.
8.3 Cash Discount and
Sales Terms
 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
8.3.1 Find the Cash Discount
and the Net Amount
 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.”
 Find the cash discount for an invoice dated
December 1 for $1,500 with terms of 2/10
n/30.
 If the invoice is paid on December 9th, for
example, the payment would include the
discount and the amount would be $1,470.
 If the invoice is paid on or after December
11th, the amount to pay would be $1,500.
Try these examples
 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.
“Thirty 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; using a
chart is usually the most reliable.
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
Try this example
 Sycamore Enterprises received a $1,248 bill for
computer supplies dated September 2 with sales terms
of 2/10, 1/15, n/30. A 5% 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 (1% discount) = $1,235.52
 October 1 (no discount) = $1,248.00
 October 3 (5% 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 2% discount is
allowed if the bill is paid during the first
month or up until 10 days of the month after
the month on the date of the invoice.
 If the invoice is dated November 19, then
the 2% discount is allowed up to and
including December 10.
Look at these examples
 An invoice dated March 4 with terms of 3/15
EOM would mean that a 3% discount would be
applicable until April 15.
 An invoice dated August 25 with terms of 5/10
applicable until September 10.
 An invoice dated December 2 with terms of 2/20
applicable until January 20.
An EOM exception!
 An exception occurs when the invoice is
dated on or after the 26th 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.
8.3.3 Apply Receipt of Goods
(ROG) 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 1%
discount is applicable 10 days after the goods
are received; not when the invoice is dated.
Try this example
 Judy’s Fine Jewelry received an invoice for 50
silver charm bracelets for a total of $550. The
invoice is dated April 1. She received 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
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.
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.
 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
(complement of the discount rate)
 B = 500/0.97= $515.46 = amount credited
 The balance would be the difference.
 $875 - $515.46 = $359.54 = balance
8.3.5 Interpret Freight Terms
 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.
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.
Remember that cash discounts
do not apply to shipping 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: $800 – 125 = $675
 Apply the discount: $675 x 0.97 = $654.75
 Add the shipping charges back in:
$654.75 + 125 = $779.75= amount to be paid

CH08 PPT

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH08 PPT

Uploaded by

Copyright:

Available Formats

8.

1 Single Trade Discounts

 Find the trade discount using a single

Manufacturer Wholesaler Retailer Consumer

Consumer Retailer Wholesaler Manufacturer

$80 $56 $40 $20

 Trade discount = rate x list price

 Trade discount = 0.35 x $120

 Find the trade discount for styling gel that

Trade discount = Rate x List Price

 Trade discount = 0.30 x $320 = $96

 Net price = List price – Trade discount

 Net price = $320 - $96 = $224

 Find the net price of a patio table that lists

 The complement of 55% is 45%

 The complement of 5% is 95%.

 Find the net price of a bicycle that lists for

 Find the net price, applying a trade

 Reasons to use discount series include:

 If the item has three discounts of 20%, 10%

 A dress shirt lists for $125 and has a trade

 Subtract the net decimal equivalent (0.504) from

 Bills are often due within thirty days from the

 What if the bill is paid on November 30?

 To calculate the exact number of days for a cash

 An invoice of $500 which reads 2/10 n/30

 September 12 (2% discount) = $1,223.04

 Another type of sales term are EOM terms.

 A cash discount is allowed when the bill is paid

 Example: The Home Doctor received a shipment of

You might also like