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Trade Discounts15-1SECTION
Key Words to Know
list price
The price at which a business generally sells an item, also called the catalog price.
trade discount
A discount off the list price of an item.
Key Words to Know
trade-discount rate
The amount of the discount of an item expressed as a percent of the list price.
net price
The price actually paid for a discounted item.
Trade Discount = List Price × Trade-Discount Rate
Net Price = List Price – Trade Discount
Formulas
Johnson Auto Repair Shop is purchasing an electronic ignition module for a sport coupe that is six years old. The list price in the wholesaler’s catalogue is $845.
Johnson receives a 40 percent trade discount.
What is the net price of the module?
Do Now
Find the trade discount.
List Price × Trade-Discount Rate
$845 × 40% = $338.00
Answer: Step 1
Find the net price.
List Price – Trade Discount
$845.00 – $338.00 = $507.00
Answer: Step 2
Assignment:Workbook p. 107 #1-10
Trade Discount—Complement Method
pp. 489-49115-2SECTION
Section ObjectiveCalculate:
•net price using the complement method
Net Price = List Price × Complement of Trade-Discount Rate
Formula
Key Words to Know
complement method
A way to find the net price of a discounted item by subtracting the discount rate from 100 percent.
The list price of an electronic ignition module in the wholesaler’s catalog is $845.
Repair shops receive a 40 percent trade discount.
What is the net price of the module?
Do Now
Find the complement of trade-discount rate.
100% – 40% = 60%
Answer: Step 1
Find the net price.
List Price × Complement of Trade-Discount Rate
$845.00 × 60% = $507
Example 1 Answer: Step 2
Net Price = List Price × Percent Price
Formula #2
Shelita Reeves runs Affiliated Lumber and buys paint from Dap Corporation.
Dap grants a 40 percent trade-discount rate to all retail outlets.
How much does Reeves pay for a case of white ceiling paint if it retails for $132.
Do Now
Step: Find the net price
List Price = List Price × Percent Price
$132.00 × (100% − 40%)
$132.00 × 60% = $79.20
Example 2 Answer
Trade-Discount Rate pp. 492-49415-3SECTION
Key Words to Know
trade-discount rate
The amount of the discount of an item expressed as a percent of the list price.
Trade Discount = List Price – Net Price
Trade-Discount Rate = Trade Discount
List Price
Formulas
Auto Parts Manufacturing Company shows a $156 list price in its catalog for a water pump.
The net price to the retailer is $117.
What is the trade-discount rate?
Do Now
Find the trade discount.
List Price – Net Price
$156 – $117 = $39
Answer: Step 1
Find the trade-discount rate.
Trade Discount ÷ $156 = 25%
Example 1 Answer: Step 2
Assignment:WB Page 108 #1-12
Chain Discounts pp. 495-49715-4SECTION
Section ObjectiveDetermine:
• final net price after a chain of discounts
Key Words to Know
chain discounts
A series of trade discounts a supplier may offer to sell out a discontinued item or to encourage a customer to place a larger order.
Formula
Lawn Corporation produces a lawn mower which is priced at $695. A new model is ready for production, so the old model will be discontinued. Lawn Corporation is offering a chain discount of 20 percent less 10 percent, also written as 20/10.
What is the final net price of the lawn mower?
Do Now
Find the first discount.
List Price × Discount Rate
$695.00 × 20% = $139.00
Answer: Step 1
Find the first net price.
List Price – Discount
$695.00 – $139.00 = $556.00
Answer: Step 2
Find the second discount.
$556.00 × 10% = $55.60
Answer: Step 3
Find the final net price.
$556.00 – $55.60 = $500.40
Answer: Step 4
Assignment:Workbook Page 109 #1-6
Chain Discounts—Complement Method
15-5SECTION
Section ObjectiveCompute:
• final net price using the complement method
Key Words to Know
net-price rate
The percent of the price paid for an item, found by multiplying the complements of the chain discounts.
Net Price Rate = Product of Complements of Chain-Discount Rates
Net Price = List Price × Net-Price Rate
Formula
Dell’s manufactures a riding mower, which is priced at $1,450. A new model is ready for production, so the model will be discontinued.
Dell’s is offering a chain discount of 25 percent less 20 percent less 10 percent.
What is the net price for the mower?
Do Now
Find the complements.
Complement of 25 percent: 100% – 25% = 75%
Complement of 20 percent: 100% – 20% = 80%
Complement of 10 percent: 100% – 10% = 90%
Answer: Step 1
Find the net-price rate.
Product of Complements of Chain-Discount Rates
75% × 80% × 90% = $54%
Answer: Step 2
Find the net price.
List Price × Net-Price Rate
$1,450 × 54% = $783
Answer: Step 3
Key Words to Know
single equivalent discount (SED) (p. 499)
One discount that is equal to a chain discount.
SED = Complement of Net-Price Rate
Discount = List Price × SED
Formula
In Example 1 the chain discount complements were 75 percent/80 percent/90 percent and the net-price rate was 54 percent.
What is the SED?
What is the discount?
Example 2
Cash Discounts—Ordinary Dating
pp. 502-50415-6SECTION
Section ObjectiveCompute:
•cash price when the discount is based on ordinary dating
Key Words to Know
invoice
A bill listing the quantities and costs of items purchased.
cash discount
A discount a supplier grants if a bill is paid within a certain number of days.
Key Words to Know
ordinary dating
Terms of payment by a supplier which grants a cash discount if a bill is paid within a certain number of days.
How do I calculate the cash discount?
Cash Discount = Net Price × Cash-Discount Rate
How do I calculate the cash price?
Cash Price = Net Price – Cash Discount
Formulas
How do I use the complement method to find the cash price?
Cash Price =Net Price × Complement of Cash-Discount Rate
Formula
Below is part of an invoice that the Lighting Store received for a shipment of lamps.
What is the last day the discount can be taken?
What is the last day to pay the invoice?
What is the cash discount?
What is the cash price of the lamps if the bill is paid within ten days?
Do Now
Example 1 (cont.)
Find the last day a discount can be taken.
Date of invoice: June 5
Terms: 2/10, net 30
Discount can be taken until June 15, 10 days from date of invoice.
Example 1 Answer: Step 1
Find the last days to pay the invoice.
Terms: 2/10, net 30. The “net 30” means the invoice must be paid by: June 05 + 30 days = June 35 (which doesn’t exist). Obviously you are into July, and because June has 30 days, you subtract 30 days:
June 35 – 30 = July 05
Answer: Step 2
Find the net price.
Net Price × Cash-Discount Rate
$1,026.10 × 2% = $20.522 or $20.52
Answer: Step 3
Find the cash price.
Net Price – Cash Discount
$1,026.10 – $20.52 = $1,005.58
Answer: Step 4
In Example 1 the terms are 2/10, net 30 with an invoice amount of $1,0026.10.
What is the cash price using the complement of the cash-discount rate?
Example 2
Cash Discounts—EOM Dating15-7SECTION
Section ObjectiveCalculate:
•cash price when the discount is based on end-of-month dating
Key Words to Know
end-of-month dating
Terms of payment by a supplier which grants a cash discount if a bill is paid within a certain number of days after the end of the month when the invoice is issued.
Cash Discount = Net Price × Cash-Discount Rate
Cash Price = Net Price – Cash Discount
Formulas
Bob’s Drugstore received the invoice below from General Wholesalers.
What is the last day that Bob’s can take advantage of the 4 percent cash discount?
What is the last day to pay the invoice?
What is the cash discount?
What is the cash price?
Do Now
Example 1 (cont.)
Find the last day a discount can be taken.
Date of invoice: July 12.
Terms: 4/10 EOM
Discount can be taken until August 10, 10 days after the end of July.
Answer: Step 1
Find the last day to pay the invoice.
Terms: 2/10 EOM.
The full amount is due 20 days after the discount date.
August 10 + 20 = August 30
Answer: Step 2
Find the cash discount.
Net Price × Cash-Discount Rate
$727.05 × 4% = $29.082 or $29.08
Answer: Step 3
Find the cash price.
Net Price – Cash Discount
$727.05 – $29.08 = $697.97
Answer: Step 4
It is a common business practice to grant a one-month extension on invoices dated on or after the 26th of the month. An invoice dated November 27 has terms of 2/10 EOM. Net price is $8,100. The invoice is paid January 9.
What is the last day the 2 percent cash discount can be taken and the last day to pay the invoice? Find the cash price using the complement method.
Do Now
Find the last day a discount can be taken.
Date of invoice: November 27th, which is after the 26th, thus a 1-month extension is granted.
A 1-month extension means the discount can be taken until January 10, 10 days after the end of December.
The invoice must be paid after the end of December.
Example 2 Answer: Step 1
Find the complement of the cash-discount rate.
100% – 2% = 98%
Answer: Step 2
Assignment:Workbook Page 110 #1-5
