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## PowerPoint Slideshow about '8.1 Single Trade Discounts' - sylvain

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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

- 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

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