Business Mathematics Chapter 7 - Discounts: Trade and Cash

A radio with a net price of $700 and a trade discount rate of 30% has a list price of $1,000.

True

The list price of a Macintosh computer is $2,700. The manufacturer offers dealers a 40% trade discount. What are the trade discount amount and the net price?

$2,700 x .40 = $1,080 $2,700 - $1,080 = $1,620 Solution: $1,620

Single equivalent discount rate

1 - Net Equivalent Rate

An invoice dated March 6 with terms of 1/10, EOM results in the end of the discount period on:

1/10 EOM - this means the buyer will receive a cash discount if the bill is paid within 10 days after the end of the month indicated on the invoice date (March 6). EOM results in the end of the discount period on: April 10.

The net price equivalent rate of 3/7/13 is:

100% - 3% = .97 100% - 7% = .93 100% - 13% = .87 .97 x .93 x .87 = .784827 Solution: 0.784827

An invoice dated 5/19/xx received by Jones Supply indicated a balance of $17,000. This balance included a freight charge of $1,000. Terms of the bill were 5/10, 4/30, n/60. Assuming Jones pays off the bill on June 4, he pays:

17,000 - $1,000 = $16,000 $16,000 x .04 = 640 $16,000 - $640 = $15,360 $15,360 + $1000 = $16,360

Cash Discount

A deduction that a vendor allows on the invoice amount to encourage prompt payment

Net Price Equivalent Rate

Actual Cost To Buyer = List Price x Net Price Equivalent Rate Take Complement of each chain discount and multiply- do not round. Trade Discount Amount = List Price - Actual Cost to Buyer

3/10, 1/15, n/30 means that a 3% cash discount is available from day 11 to day 15.

False

Feb. 15 is 71 days from Nov. 29.

False

Net price times rate of trade discount equals amount of trade discount.

False

Those making partial payments are not allowed to take a cash discount.

False

Trade discounts must be paid within the cash discount period.

False

Macy of New York sold LeeCo. of Chicago office equipment with a $6,000 list price. Sale terms were 3/10, n/30 FOB New York. Macy agreed to prepay the $30 freight. LeeCo. pays the invoice within the discount period. What does LeeCo. pay Macy?

Find the Complement of the Discount Rate 100% - 3% = .97 Multiply the list price by the Complement $6,000 x .97 = $5,820 Add Freight $5,820 + $30 = $5,850 Solution: $5,850

Majestic Manufacturing sold Jordans Furniture a living room set for an $8,500 list price with 35% trade discount. The $100 freight (FOB shipping point) was not part of the list price. Terms were 3/10, n/30 ROG. The invoice date was May 30. Jordans received the goods on July 18 and paid the invoice on July 20. What was the final price (include cost of freight) of the living room set?

Find the Complement of the Trade Discount: 100% - 35% = .65 Calculate the net price: $8,500 x .65 = $5,525 Find the Complement of the Discount Period: 100% - 3% = .97 Multiply the net price by the discount period complement: $5,525 x .97 = $5,359.25 Add the Freight: $5,359.25 + $100 = $5,459.25 Solution: $5,459.25

FOB Shipping Point

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

FOB Destination

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

Net Price

List Price - Trade Discount Amount OR List Price x Complement of Trade Discount Price

Trade discount amount

List Price x Trade Discount Rate

Credit Period

The amount of time the buyer is allowed in which to pay the seller.

Discount Period

Time period in which a cash discount is available and the buyer can make a reduced payment.

EOM

When sellers sell goods after the 25th of the month, buyers gain an additional month. The cash discount period ends on the 10th day of the second month that follows the sale. Why? This occurs because the seller guarantees the 15 days' credit of the buyer. If a buyer bought goods on August 29, September 10 would be only 12 days. So the buyer gets the extra month.

Living Ornaments is offering a special for wedding planners. Wedding flower orders totaling over $500 receive a 10% discount, over $750 a 15% discount, over $1,000 a 20% discount. All orders $1,500 and above receive a 25% discount. The delivery charge is $75 on weekdays and $125 on weekends. Terms are 2/10 EOM. WeddingsRUs placed an order for Thursday, June 1, delivery. The list price on the chosen flowers totals $848.50. (Do not round intermediate calculations. Round your answer to the nearest cent.)

a. Calculate the trade discount and the net price for the flowers to be delivered. Trade discount amount = List Price x Trade Discount Rate $848.50 x .15 = 127.28 Net Price = List Price - Trade Discount Amount $848.50 - 127.28 = 721.22 b. How much does WeddingsRUs owe if they pay the invoice on July 10? Compliment of Discount Rates 100% - 2% = .98 100% - 15% = .85 Find the Net Equivalent Rate: .98 x .85 = .833 Multiply The Net Equivalent Rate by the Net Price $848.50 x .833 = 706.80 Add Freight Charges $706.80 + $75 = 781.80 Solution : $781.80

On March 11, Jangles Corporation received a $20,000 invoice dated March 8. Cash discount terms were 4/10, n/30. On March 15, Jangles sent an $8,000 partial payment.

a. What credit should Jangles receive? Calculate the complement of a discount rate 100% - 4% = .96 Divide Partial Payments by the complement of the discount rate. This gives the amount credited. $8,000 / .96 = $8,333.33 b. What is Jangles' outstanding balance? Subtract the credited amount from the total owed. $20,000 - $8,333.33 = $11,666.67

ROG

the cash discount period begins when buyer receives goods, not the invoice date. Industry often uses the ROG terms when buyers cannot expect delivery until a long time after they place the order. Buyers can take a 3% discount within 10 days after receipt of goods. The full amount is due between day 11 and day 30 if the cash discount period is missed.

Home Depot wants to buy a new line of fertilizers. Manufacturer A offers a 21/13 chain discount. Manufacturer B offers a 26/8 chain discount. Both manufacturers have the same list price.

A. What is the percentage of discount for both manufacturers? (Do not round intermediate calculations. Round your final answers to the nearest hundredth percent.) Manufacturer A: Complement of Each Rate 100% - 21% = .79 100% - 13% = .87 Net Price Equivalent .79 x .87 = .6873 Single Equivalent Discount Rate 1- .6873 = . 3127 Convert to Percentage 31.27% Manufacturer B: Complement of Each Rate 100% - 26% = .74 100% - 8% = .92 Net Price Equivalent .74 x .92 = 6808 Single Equivalent Discount Rate 1- .3192 Convert to Percentage 31.92% B. What manufacturer should Home Depot buy from? Manufacturer B

Lucky you! You went to couponcabin.com and found a 20% off coupon to your significant other's favorite store. Armed with that coupon, you went to the store only to find a storewide sale offering 10% off everything in the store. In addition, your credit card has a special offer that allows you to save 10% if you use your credit card for all purchases that day. Using your credit card, what will you pay before tax for the $155 gift you found? Use the single equivalent discount to calculate how much you save and then calculate your final price.

Complement of Each Rate: 100% - 20% = .80 100% - 10%= .90 100% - 10%= .90 Find the Net Equivalent Rate: .80 x .90 x .90 = .648 Single Equivalent Rate: 1 - .648 = 0.352 Savings: $155 * 0.352 = $54.56 Final Price: $155 - $54.56 = $100.44 Solution: $100.44

Bally Manufacturing sent Intel Corporation an invoice for machinery with a $14,000 list price. Bally dated the invoice July 23 with 2/10 EOM terms. Intel receives a 40% trade discount. Intel pays the invoice on August 5. What does Intel pay Bally?

Multiply List Price by Trade Discount $14,000 x .04 = $5,600 Subtract Total from List Price: $14,000 - $5,600 = $8,400 Multiply Total by the 2/10 EOM discount: $8,400 x .02 = $8,232 Solution: $8,232

List Price

Net Price/ Complement of trade discount rate

Levin Furniture buys a living room set with a $4,000 list price and a 55% trade discount. Freight (FOB shipping point) of $50 is not part of the list price. What is the delivered price (including freight) of the living room set, assuming a cash discount of 2/10, n/30, ROG? The invoice had an April 8 date. Levin received the goods on April 19 and paid the invoice on April 25.

Step 1. Find the Complement of the Trade Discount 100% - 55% = .45 Step 2. Multiply the list price by the complement of the trade discount $4,000 x .45 = 1,800 Step 3. Find the Complement of the 2/10 Discount: 100% - 2% = .98 Step 4. Multiply the 2/10 discount complement by the new list price: 1800 x .98 = $1,764 Step 5. Add the Freight Cost $1,764 + $50 = $1,814 Solution: $1,814

Majestic Manufacturing sold Jordans Furniture a living room set for an $8,500 list price with 35% trade discount. The $100 freight (FOB shipping point) was not part of the list price. Terms were 3/10, n/30 ROG. The invoice date was May 30. Jordans received the goods on July 18 and paid the invoice on July 20. What was the final price (include cost of freight) of the living room set?

Step 1: Find the Complement of the Trade Discount 100% - 35% = .65 Step 2: Calculate the net price $8,500 x .65 = $5,525 Step 3: Find the Complement of the Discount Period 100% - 3% = .97 Step 4: Multiply the net price by the discount period complement $5,525 x .97 = $5,359.25 Step 5: Add the Freight $5,359.25 + $100 = $5,459.25 Solution: $5,459.25

Rocky Mountain Chocolate Factory (RMCF) founder and president Frank Crail employs 220 people in 361 outlets in the United States, Canada, United Arab Emirates, Japan, South Korea and Saudi Arabia. If RMCF purchases 20 kilograms of premium dark chocolate at $16.25 per kilo, what is the net price with a 10/5 chain discount?

Step 1: Find the complement of the chain discount 100% - 10% = .90 100% - 5% = .95 Step 2: Multiple the compliments .90 x .95 = 0.855 Step 3: Multiply the amount of dark chocolate by its price 20kg x $16.25 = $325 Step 4: Multiply the price of the chocolate by its discount amount and round to the nearest cent $325 x 0 .855 = 277.88 Solution: $277.88

2/10, EOM means the credit period ends 20 days after the end of the discount period.

True

True Value received an invoice dated April 15, 2015. The invoice had a $5,500 balance that included $300 freight. Terms were 4/10, 3/30, n/60. True Value pays the invoice on April 29. What amount does True Value pay? (If more than one discount, assume date of last discount)

The term 4/10 means that True value can avail of 4% discount if it pays within 10 days from date of issuance. The 10th day would be 4/25/12 The term 3/30 means that True value can avail of 3% discount if it pays from the 11th day up to the 30th day from the date of issuance. April 29 is beyond the 10th day but within the 30 days discount period. True Value can avail of the 3% discount. 5,500 - 300 = 5,200 The freight can't be subjected to discount thus it is deducted from the total invoice amount. 5,200 * 3% = $156 $5,200 - $156 = $5,044 amount True Value has to pay, not including freight 5044 + 300 = $5,344 Solution = $5,344

Ordinary Dating Method

This is illustrated by such terms as "1/10, net 30" of "2/10, net 60." The two specified time elements are the cash discount and the net credit period. The cash discount may be deducted if the bill is paid within the discount period (10 days in both examples); otherwise, the full amount is due at the end of the credit period (30 and 60 days in the examples given).