BUYINGBUYING

By : GROUP 5By : GROUP 5

TRADE DISCOUNT

An amount or rate by which the catalog, list, or retail price of an item is reduced when sold to a reseller. The trade discount reflects the reseller's profit margin and usually varies directly with the quantity of the item purchased.

EXAMPLE:

1. Compute the net price and the discount for P45,000 of the furniture set offered at 15% discount rate.

Discount = Discount rate x list price

= 15% x 45,000

= .15 x 45,000

= 6,750

EXAMPLE:

2. A dining table set had a list price of 20,000 and was sold to customer for 15,500. What was the trade discount rate?

Discount rate = amount of discount / list price

= 4,500 / 20,000

= 0.225

= 22.5 %Amount of discount = list price - net price

= 20,000 - 15,500

= 4,500

EXAMPLE:

3. Mario paid 12,200 for a android phone on sale that had 15% off the list price. What was the list price of android phone?

List price = net price / 100% - discount rate

= 12,200 / 100% - 15%

= 12,200 / 85%

= 14, 353

EXAMPLE:

4. The net price for a sweatshirt is 20.63. If the store receives a trade discount of 25% what would the list price of the sweatshirt be?

List price = net price / 100% - discount rate   

= 20.63 / 100% - 25%   

=  20.63                      75%

                 = 20.63                     0.75

                  = 27.51

EXAMPLE:

5. Compute the net price and the discount for P50,000 of the computer set offered at 10% discount rate.

Discount = Discount rate x list price

= 10% x 50,000

= .10 x 50,000

= 5,000

DISCOUNT SERIES

A multiple discounts can be converted to a single equivalent discount rate (SEDR), w/c will give the same total discount as the discount series when taken separately.

FORMULA:

SEDR = 1 – [(100% - DR1)(100% - DR2)(100% - DR3)

…..] and so on.

EXAMPLE:

1. Find the single rate equivalent to discount series of 20%, 15%, 10%.

DR1 = 20% DR2 = 15% DR3 = 10%

SEDR = 1– [(100% - DR1)(100% - DR2)(100% - DR3)]

= 1– [(100% - 20%)(100% - 15%)(100% - 10%)]

= 1– [(80%)(85%)(90%)]

= 1– [(0.80)(0.85)(0.90)]

= 1– 0.612

= 0.388% or 38.8%

EXAMPLE:

2. Calculate the single equivalent discount and amount of trade discount on merchandise listing for 20,000, less trade discounts of 30%, 10%, 5%.

DR1 = 30% DR2 = 10% DR3 = 5%

SEDR = 1– [(100% - DR1)(100% - DR2)(100% - DR3)]

= 1– [(100% - 30%)(100% - 10%)(100% - 5%)]

= 1– [(70%)(80%)(95%)]

= 1– [(0.70)(0.80)(0.95)]

= 1– 0.5985

= 0.4015 or 40.15%

TD = LP X TDR = 20,000 X 40.15% = 8,030

EXAMPLE:

3. Find the single rate equivalent to the discount series of 20% and 15%.

DR1 = 20% DR2 = 15%

SEDR = 1– [(100% - DR1)(100% - DR2)]

= 1– [(100% - 20%)(100% - 15%)]

= 1– [(80%)(85%)]

= 1– [(0.80)(0.85)]

= 1– 0.68

= 0.32% or 32%

EXAMPLE:

4. A television is listed at 13,000, less discount of 5%, 10%, and 15%.

DR1 = 5% DR2 = 10% DR3 = 15%

SEDR = 1– [(100% - DR1)(100% - DR2)(100% - DR3)]

= 1– [(100% - 5%)(100% - 10%)(100% - 15%)]

= 1– [(95%)(90%)(85%)]

= 1– [(0.95)(0.90)(0.85)]

= 1– 0.72675

= 0.27325 or 27.33%

EXAMPLE:

5. A desktop is listed at 15,000, less discount of 10%, 8%, and 5%.

DR1 = 10% DR2 = 8% DR3 = 5%

SEDR = 1– [(100% - DR1)(100% - DR2)(100% - DR3)]

= 1– [(100% - 10%)(100% - 8%)(100% - 5%)]

= 1– [(90%)(92%)(95%)]

= 1– [(0.90)(0.92)(0.95)]

= 1– 0.7866

= 0.2134 or 21.34%

Formula Formula

Retail Discount = List price x Discount rate

Rate Discount = Retail Discount / List Price

List Price = Retail Discount / Rate of Discount

Net Price = List Price – Retail Price

Examples

A customer bought a brand new motorcycle that has a list price of 80,000 with 10% discount. How much did the customer actually pay?

Given: List Price = 80,000Discount rate = 10%

Solution:Retail Discount = List price x Discount rate

= 80,000 x 10%= 8000

Net Price = List Price – Retail Price = 80000 – 8000 = 72,000

A pair of shoes was sold with a given discount of 50.00, which was 5% of the original price. Compute for the original price of the computer machine.

Given: Retail Discount = 50.00Rate of Discount = 5%

Solution:List Price = Retail Discount / Rate of

Discount= 50.00/ 5%= 1,000.00

How much must a buyer pay a dictionary marked 500.00 less 3% discount?Given:

List Price =500Discount rate = 3%

Solution:Retail Discount = List price x Discount

rate= 500.00 x 3%=15

Net Price = List Price – Retail Price = 500.00 –15 =485.00

Maria bought a dress in a shop. The price is 300.00 with a 8% discount. How much did she pay?Given:

List Price =300Discount rate = 8%

Solution:Retail Discount = List price x Discount rate

= 300.00 x 8%=24

Net Price = List Price – Retail Price = 300.00 – 24 =276.00

A discount of 686.00 was given to Bryan when he bought a cell phone with a list price of 4,900.00. Find the discount rate.Given:

retail discount= 686.00List price= 4,900.00

Solution: Rate of discount= retail discount/List price

= 686.00/ 4,900.00= 0.14 or 14%

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4 - 22

Cash DiscountCash Discount

Invoice

Returned Goods

Freight

Sales Tax

&

Trade Discounts

A discount given for the prompt payment

of an account.

No Cash Discount

LO 3.LO 3.

4 - 23

May

Discount & Credit Periods

Discount periodDiscount period

Credit periodCredit period

Period for buyer to take advantage of Discount Terms

Period for buyers to pay invoices

TermsTerms

Within 10 Days

Within 30 Days

Cash DiscountCash Discount

4 - 24

Invoice

Dated May 3

Terms 2/10, n/30

Terms 2/10, n/30Terms 2/10, n/30

2% discount IF paid in 10 daysIF Not …then full

amount payable in 30 days

Paid on May 10thPaid on May 10th

Therefore, discount can be claimed!Therefore, discount can be claimed!

TermsTerms

Net paymentNet payment

LO 4.LO 4.

Cash DiscountCash Discount

$500

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.”

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= $490= $490

Formula Formula N = L(1 – d)or

discount= List payment x Discount rate

Net payment= List payment - discount

= 500(1-.02)= 500(.98)

N

Cash DiscountCash Discount

Invoice

$500

Terms 2/10, n/30Terms 2/10, n/30

•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.

N = L(1 – d)

=1,500(1-.02)

=1,470

•If the invoice is paid on or after December 11th, the amount to pay would be $1,500.

Cash DiscountCash Discount

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

N = L(1 – d)

=450.00 (1-.05)

=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.

Cash DiscountCash Discount

•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

Cash DiscountCash Discount

•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

Cash DiscountCash Discount

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.

N = 1248(1 – d)

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

Cash DiscountCash Discount

Cash DiscountCash Discount

An invoice for 600.00 was dated May 1 with credit terms of 2/10, 1/20, n/30. What amount should the buyer pay if he pays in full on a) May 8? B.) May 15? C.) May 31?

Solution:a.) It is 7 days from May 1 to May 8.

Thus, a 2% cash discount is allowed.600 x 2%= 12600-12= 588b.) It is 14 days from May 1 to May

15. Thus, a 1% cash discount is allowed.600 x 1%= 6600-6= 594

c.) it is 30 days from May 1 to May 31.Thus, no discount allowed so the buyer must pay the whole amount w/c is 600.

Partial Payments

Partial payment refers to the offering of a payment by check for less than the full amount claimed by the creditor.

Payment amount that is less than the due amount, is a part payment for an unfinished work, or is an installment payment.

EXAMPLE:

3. 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

4. Mail Boxes Etc. receives an invoice amounting to $672.30 with terms of 8/10, net 30 and dated AS OF September 1. If a partial payment of $450 is made on Sept. 8, find the credit given for the partial payment.

5. Yogurt for You receives an invoice amounting to $263.40 with terms of 2/20 EOM and dated September 6. If a partial payment of $150 is made on October 14, find the credit given for the partial payment.

References:

Sirug, W. (2010). Business Mathematics. Manila: Mindshapers Co., Inc.

Altares et al. (2004). Business Mathematics. Manila:

Rex Printing Company. Inc.

Prepared by:

Bryan Jay L. Curangcurang

Mariah B. Tipayan

Angela Mae N. Cabanilla

Dionesia C. Retorca

Angelo Ang

Happy Schooling!