Math of 4-1

44
Merchandising

Mathematics
Mathem
of

Chapter
Chapter 4
4

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 Math of 4-2

44
Merchandising
Learning Objectives
After completing this chapter, you will be able to:
Calculate
LO 1. … the net price of an item after single or
multiple trade discounts

LO 2. … a single discount rate that is equivalent

to a series of multiple discounts
LO 3. … the amount of the cash discount for
which a payment qualifies
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44
Merchandising
Learning Objectives

Understand
LO 4. …the ordinary dating notation for the
terms of payment of an invoice

Solve
LO 5. …merchandise pricing problems
involving mark ups and markdowns

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44
Merchandising

Middlemen

Manufacturer
Manufacturer Receive
Distributor
Distributor
varying
levels of
Wholesaler
Wholesaler
‘trade
discounts’
Retailer
Retailer Consumer
Consumer

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44 Trade Discount
Discount
Merchandising Trade
LO 1.
Calculating
Formula
Formula
Amount of discount = dL
Discount
D iscountRate LististPrice
Rate L Price

Formula
Formula Net Price = L(1 – d)
i.e. Net Price = List Price – Amount of Discount

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44 Trade Discount
Discount
Merchandising Trade
The price of office equipment is $3000.
The manufacturer offers a
30% trade discount.
Find the net price and the trade discount
amount.
Formula
Formula Net Price = L(1 – d) 30%
30%
= 3000(1 – .3)
= 3000(.7)
= $2100
Formula
Formula Amount of discount = dL
= .3* $3000 = $900
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 Math of 4-7

44 Trade Discount
Discount
Merchandising Trade

An order for power tools has a $2100

net price after a 30% trade discount.
What is the list price?
Formula Net Price = L(1 – d)
Formula
L = N/(1 – d)
= 2100 /(1 – .3)
= 2100/(.7)
= $3000
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44
Merchandising Trade Discount
Trade Discount
LO 2.
Series Discounts
This refers to the giving of further
discounts as incentives for more sales. Middlemen
Distributor
Distributor
For example 15% off first
… then 10% off next Wholesaler
Wholesaler
… then a further 5% off next

Note This does not mean a TOTAL of 30% Discount!

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44
Merchandising Trade Discount
Trade Discount

The price of office furniture is $20000.

The series discounts are 20%,10%, 5%.
What is the net price?

Formula
Formula N = L(1 – d)
N = L (1-d1) (1-d2) (1-d3)
= 20000(1-.2)(1-.10)(1-.05)
= 20000(.8)(.9)(.95)
= 20000(.6840) = $13680
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44
Merchandising Trade Discount
Trade Discount

Find the single discount rate that is

equivalent to the series 15%, 10% and 5%.
Apply
Applythe
themultiple
multiple N = L(1 – d)
Step discounts
Step discounts totoaa N = 100 (1-d1) (1-d2)(1-d3)
11 List
List price
price of
of discounts 15% 10% 5%
discounts
$100
$100
= 100 (.85* .90* .95)
Calculate
Calculate the
the
Step
Step = 100 (.7268) = 72.68
2 dollar
dollar amount
amount
2
of
ofthe
the = 100 – 72.67 = 27.33%
$27.33
27.33%
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discount
 Math of 4 - 11

44
Merchandising Trade Discount
Trade Discount

The price of car parts is $20,000.

The series discounts are 20%, 8%, 2%.
What is the single equivalent
discount rate?
Apply
Applythe
themultiple
multiple = 100(.8)(.92)(.98)
Step
Step discounts
discounts to
toaa
11 List
List price
price of
of = $72.13
$100
$100 discount = 100 – 72.13
Step Calculate the dollar
Step = 27.87
22 amount of the
discount = 27.87 %
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 Math of 4 - 12

44 = 100 (.8)(.92)(.98)
Merchandising

Step 11
Step Step 22
Step
100 72.13
72.13
27.87
.8 100

.92
27.87
.98
27.87 %

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44
Merchandising

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44 Cash Discount
Cash Discount
Merchandising

LO 3. A discount given for the

prompt payment
of an account.
Invoice

Returned Goods
Freight
No Cash
Sales Tax
Discount
&
Trade Discounts
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44 Cash Discount
Cash Discount
Merchandising

Discount & Credit Periods

May Within 10 Days Discountperiod
Discount period

Period for buyer to

take advantage of
Discount Terms
Within 30 Days
Credit period
Credit period
Period for buyers to
pay invoices

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Terms
Terms
 Math of 4 - 16

44 Cash Discount
Cash Discount
Merchandising

LO 4. Terms
Terms

Invoice Terms2/10,
Terms 2/10,n/30
n/30
Dated May 3
2% discount IF paid in 10 days
Terms 2/10, n/30 IF Not …then full amount
payable in 30 days

$500 Paidon
Paid onMay
May10th
10th
Therefore, discount
Therefore, discount can
can be
be claimed!
claimed!
Net payment
Net payment
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44 Cash Discount
Cash Discount
Merchandising

Formula
Formula N = L(1 – d)
Invoice

Terms2/10,
Terms 2/10,n/30
n/30 N = 500(1-.02)
= 500(.98)

$500 == $490
$490

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44 PartialPayments
Payments
Merchandising Partial

You owe $400. Your terms were 3/10, n/30.

Within 10 days you sent in a payment of $100.
How much is your new balance?
Step 11
Step Amount credited L = Amount paid /(1-d)
- or -
Amount credited = Payment /(1-d)
= $100/.97 100
100 -- .03
.03
Amount credited == $103.09
$103.09
Step 22
Step
Old Balance =$400 - $103.09 = $296.91
$296.91 New
New Balance
Balance
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44
Merchandising

Up
Mark
Mark
&
Mark
Dow
n

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44
Merchandising

LO 5.

Manufacturer
Manufacturer Distributor
Distributor Selling
Selling
Cost
Cost Price
Price
The price charged Wholesaler The price charged
Wholesaler to Consumers
to middlemen in
‘The Distribution by Retailers
Chain’
Retailer
Retailer Consumer
Consumer
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44
Merchandising

The X Co. Inc

Gross Sales $ X
Less: Cost of Good Sold X
Gross Profit X
(or Margin/MarkUp)
Less: Operating Expenses X
Net Profit (Income) $ X

Operating Expenses are the expenses the

company incurs in operating the business,
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e.g. rent, wages and utilities
 Math of 4 - 22

44
Merchandising

Formula
Formula
Selling Price (S) = Cost (C) + Markup (M)

Computer This
side up

$1200 = $900 + $300

Margin available to
meet Expenses and
make a Profit
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44 Mark
Mark Up
Merchandising

If the MarkUp is to be 33% on Cost then…

Selling Price (S) = Cost (C) + Markup (M)

133% = 100% + 33.33%

Cost is 100%
% MarkUp is
The Rate
The Base
$ MarkUp is
The Portion
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44 Mark
Mark Up
Merchandising

You buy Sunday newspapers for $1.00.

You plan to sell them for $1.50.
(A) What is your $ markup?
(B) …and your percent
markup on cost?
(A) Selling Price $1.50
Less: Cost 1.00
MarkUp $ .50
(B) Percent markup on cost…
= Dollar Markup = $ .50 = 50%
Cost $ 1.00
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44 Mark
Mark Up
Merchandising

Calculating the
Calculating the Selling
Selling Price
Price when
when …
…
you know Cost & Percent Mark Up on Cost

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44 Mark
Mark Up
Merchandising

Ray’s Appliances bought a sewing machine for $150.

To make the desired profit, he needs a 60% markup on Cost.
(A) What is Ray’s $ markup?
(B) What is his Selling price?
$ %/100
Selling Price 240
2? 1.60
?
Less: Cost 150 1.00
MarkUp 90? .60
S = C + M
= $150 + .60($150)
= $150 + $90
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= $240
 Math of 4 - 27

44 Mark
Mark Up
Merchandising

Calculating the
Calculating the $MarkUp
$MarkUp
and Percent
and Percenton
on Cost
Cost

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44 Mark
Mark Up
Merchandising

Jane’s flower business sells floral arrangements

for $35. To make her desired profit, Jane needs a
40% markup on cost.
(A) What do the flower arrangements cost Jane?
(B) What is the dollar markup?
$ %/100 S = C + M
(A) Selling Price 35 ?
1.40 $35 = C + .40(C)
Less: Cost 25
? 1.00 $35 1.40C
MarkUp 10
? .40 1.40 = 1.40
(B) M == SS -- CC
C = $25
M
M == $35
M $35--$25
$25
M ==
M $10
$10
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44 Mark
Mark Up
Merchandising

Calculating the
Calculating the MarkUp
MarkUp
and Percent
and Percenton
on Selling Price
Selling Price

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44 Mark
Mark Up
Merchandising

Becomes Formula
Formula …on
…on Selling
Cost Price
Selling Price (S) = Cost (C) + Markup (M)
Selling Price is 100% Cost is 100% % MarkUp is
Selling Price Cost
The Base The The Rate
Base
$ MarkUp is
The Portion
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44 Mark
Mark Up
Merchandising

You buy Sunday newspapers for $2.00.

You plan to sell them for $2.50.
(A) What is your $ markup?
(B) …and your percent markup on Selling Price?
$ %/100
(A) Selling Price 2.50 1.00
Less: Cost 2.00 .80
MarkUp .50 .20
(B) % markup on Selling Price
Dollar Markup
Selling Price = $ .50 == 20%
20 %
$ 2.50
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44 Mark
Mark Up
Merchandising

Ray’s Appliances bought a sewing machine for $150.

To make the desired profit, a 60% markup on Selling
Price is needed. (A) What is the Selling price?
(B) What is the $ markup?
$ %/100
2? 1.00
1.00
(A) Selling Price 375 1.00 -- .60
.60
Less: Cost 150 .40 .40
.40
MarkUp 225
? .60
S = C + M (B)
= $150 + .60(S) MM == SS -- CC
MM == $375
$375--$150
$150
.40S = $150
MM == $225
$225
S = $150/.40 = $375
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44 Mark
Mark Up
Merchandising

Jane’s flower business sells floral arrangements for

$35. To make her desired profit, Jane needs a 40%
markup on Selling Price.
(A) What do the flower arrangements cost Jane?
(B) What is the dollar markup?
$ %/100 S = C + M
(A) Selling 35 1.00 $35 = C + .40($35)
Price
Less: Cost ?
21 ?
.60 $35 = C + $14
MarkUp 14
? .40
$35 - $14 = C
(B) M
M == SS -- CC $21 = C
M
M == $35
$35--$21
$21
M
M == $14
$14
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44 Mark p
Merchandising Mark U

Converting
Converting
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44 Mark
Mark Up
Merchandising

Converting 50%
Converting 50%
33%MU
33% MU
MUon
on
onCost
Cost
SP ====
SP ???%
?%
%%MU
MU
MU
MUon
onon
onCost
SS
Cost
%Markup
% Markupon
onSelling
SellingPrice
Price %Markup
% Markupon
onCost
Cost
to
to to
to
%Markup
% Markupon
onCost
Cost %Markup
% Markupon
onSelling
SellingPrice
Price

Formula
Formula Formula
Formula
% markup on S % markup on C
1 - % markup on S 1 + % markup on C
.33 .33 .50 .50
= == .50
.50 = == .33
.33
1 - .33 .67 1+ .50 1 .50
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44
Merchandising

D
Mark own

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44 MarkDo
Merchandising wn

Formula
Formula
$Markdown
%Markdown =
Selling Price (original)

Sears marked down a $50 tool set to $36.

What is (a) the $markdown and (b) the %markdown?

$Markdown = Old S – New S = $50 - $36 = $14 Markdown

%Markdown = Markdown = $14 = 28%
Old S
$50
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44 MarkDo
Merchandising wn

Ski bindings bought for $57.75 were marked up 45%

of the Selling Price. When the bindings were
discontinued, they were marked down 40%.
What was the Sale Price after the
$ 40% markdown?
%/100 S = Cost/(1 - .45) 1.00
1.00
$105.00 1.00 -- .45
.45
Selling ?
Price ? ==.55
.55
Less: Cost 57.75 .55
?
S = $57.75 / .55
MarkUp $ 47.25 .45
Selling Price = $105.00
$105.00 1.00 S(R) = S * (1-d) 1.00
1.00
Less: Discount ?
42.00 .40 = 105.00* .60 -- .40
.40
*S(R) $ 63.00
? .60 = $63.00 ==.60
.60
* Reduced S
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 Math of 4 - 39

44
Merchandising

This completes
This completes Chapter
Chapter 44

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