8.1 Single Trade Discounts

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# 8.1 Single Trade Discounts - PowerPoint PPT Presentation

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. Key Terms.

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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.
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

ManufacturerWholesaler 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:
• Identify the single discount rate and the list price.
• 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:
• Identify the list price and the trade discount.
• Subtract the trade discount from the list price.

Trade discount = Rate x List Price

Net Price = List Price – Trade discount

Look at this example
• 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 \$240 and has a trade discount of 45%.
• \$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
• Find the complement: subtract the single trade discount from 100%.
• 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 \$102 and has a trade discount of 30%.
• \$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 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:
• Find the net decimal equivalent: multiply the decimal form of the complement of each trade discount rate in a series.
• Multiply the list price by the net decimal equivalent.
Look at this example
• 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:

• Find the single discount equivalent by subtracting the net decimal equivalent from “1.”
• 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
Look at this example
• 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.”
Look at this example
• 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 10days 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 EOM would mean that a 5% discount would be applicable until September 10.
• An invoice dated December 2 with terms of 2/20 EOM would mean that a 2% discount would be applicable until January 20.
An EOM exception!
• An exception occurs when the invoice is dated onorafter 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.
Look at this example
• 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