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CHAPTER 8 Trade and Cash Discounts

CHAPTER 8 Trade and Cash Discounts. Learning Outcomes. 8-1. Find the trade discount using a single trade discount rate, and the net price using the trade discount. Find the net price using the complement of the single trade discount rate. Key Terms…. Section 8-1. Single Trade Discounts.

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CHAPTER 8 Trade and Cash Discounts

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  1. CHAPTER 8 Trade and Cash Discounts

  2. Learning Outcomes 8-1 • Find the trade discount using a single trade discount rate, and the net price using the trade discount. • Find the net price using the complement of the single trade discount rate.

  3. Key Terms… Section 8-1 Single Trade Discounts • Suggested retail price, catalog price, list price. • Three common terms for the price at 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.

  4. Key Terms… Section 8-1 Single Trade Discounts • Net price • The price the manufacturer or retailer pays, or thelist price minus the trade discount. • Discount rate • A percent of the list price.

  5. Find trade discount using a single trade discountrate; find net price using the trade discount 8-1-1 Section 8-1 Single Trade Discounts • List prices and discounts apply the percentage formula. • The portion is the trade discount T. • The rate is the single trade discount rate R. • The base is the list price L. T =RL P =RB Portion (part) = rate (percent) *base (whole)

  6. Find trade discount usinga single trade discount rate HOW TO: Section 8-1 Single Trade Discounts Identify the single discount rate and the list price. Multiply the list price by the single discount rate. Trade discount = rate x list price

  7. Trade discount = rate x list price An Example… Section 8-1 Single Trade Discounts Identify the single discount rate and the list price. Multiply the list price by the single discount rate. 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 willnot pay $42 of the $120 list price.

  8. Find the trade discountfor a rug that lists for $290 and has a trade discount of 30%. $87 Find the trade discountfor styling gel that lists for $18 and has a trade discount of 15%. $2.70 Examples… Section 8-1 Single Trade Discounts

  9. EXERCISE SET A Practice Question 1. Find the trade discount. Round to the nearest cent. Item List price Single discount Trade rate discount Mountain bike $149.50 20% ??? Trade discount = $149.50(20%) = $149.50(0.2) = $29.90

  10. Use the trade discount HOW TO: Section 8-1 Single Trade Discounts 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

  11. Trade discount = Rate x List Price Net Price = List Price – Trade discount MORE An Example… Section 8-1 Single Trade Discounts Identify the list price and the trade discount. Subtract the trade discount from the list price. Find the net price of a desk that listsfor $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

  12. Find the net price using thecomplement of the single discount rate 8-1-2 Section 8-1 Single Trade Discounts • Another method for calculating the net price uses the complement of a percent. • The complement of a percent is the difference between 100% and the given percent. • The complement of the single trade discountrate can be used to find the net price.

  13. Find the net price using thecomplement of the single discount rate Subtract the single trade discount from 100%. Multiply the list price by the complementof the single trade discount. HOW TO: Section 8-1 Single Trade Discounts Examples: Find the net priceof a coffee maker that listsfor $20 and has a trade discount rate of 20%. 80% is the complement of 20% NP = $20 x 0.80 =$16

  14. Key Terms… Section 8-1 Single Trade Discounts • Complement of percent • The difference between 100% and thegiven percent. The complement of 30% is 70%. The complement of 55% is 45% The complement of 5% is 95%. Examples:

  15. 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 Examples Section 8-1 Single Trade Discounts

  16. EXERCISE SET A Practice Question 2. Find the net price. Round to the nearest cent. Item List price Trade discount Net price Homegym $279 $49 ??? $279  $49 = $230

  17. EXERCISE SET A Practice Question 3. Find the trade discount and net price. Round to the nearest cent. Trade discount = $25(5%) = $25(0.05) = $1.25 Net price = $25  $1.25 = $23.75

  18. EXERCISE SET A Practice Question 4. Find the trade discount and net price. Round to the nearest cent. Trade discount = $100(17%) = $100(0.17) = $17.00 Net price = $100  $17 = $83.00

  19. EXERCISE SET A Practice Question 5. Find the complement of the single trade discount rate and net price. Round the net price to the nearest cent. Complement = 100% - 6% = 94% Net price = $399.98(0.94) = $375.98

  20. Learning Outcomes 8-2 • Find the net price applying a trade discount series and using the net decimal equivalent. • Find the trade discount applying a trade discountseries and using the single discount equivalent.

  21. Key Terms… Section 8-2 Trade Discount Series • Trade discount seriesorchain 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

  22. Find the net price applying a trade discountseries and using the net decimal equivalent One way to calculate the net price is to make a series of calculations. $400(0.2) = $80 $400 - $80 = $320 The first discount is taken on the list price of $400, which leaves $320. $320(0.1) = $32 $320 - $32 = $288 The second discount is taken on $320, which leaves $288. $288(0.05) = $14.40 $288 - $14.40 = $273.60 The third discount is taken on $288, which leaves the net price of $273.60. 8-2-1 Section 8-2 Trade Discount Series • Complements are used to find net prices directly. • A faster method.

  23. Find the net price applying a trade discountseries and using the net decimal equivalent 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 HOW TO: Section 8-2 Trade Discount Series An additional discount of 10% istaken 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.

  24. Can you add the discountstogether and apply it as one? Section 8-2 Trade Discount Series If the item has three discounts of20%, 10% and 5%, can you add themtogether and apply a 35% discount? No! Each time you apply the additionaldiscount, the base becomes smaller. Directly applying a 35% discount wouldresult in a final price of $260. $260 ≠ $273.60

  25. Multiply the decimal form of the complementof each trade discount rate in a series. Multiply the list price by the net decimal equivalent. Find the net decimal equivalent HOW TO: Section 8-2 Trade Discount Series

  26. Find the net price of an order with a list priceof $800 and a trade discount series of 20/10/5. Find the complement of eachof 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 An Example… Section 8-2 Trade Discount Series

  27. 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 Examples… Section 8-2 Trade Discount Series

  28. Use the trade discount HOW TO: Section 8-1 Single Trade Discounts Find the single discount equivalent by subtracting the net decimal equivalent from 1. Multiply the list price by thesingle discount equivalent. TD = single discount equivalent x list price Use the single discount equivalent to calculate thetrade discount on a $3,200 lawn tractorwith a discount series of 30/20/10.

  29. An Example… Section 8-2 Trade Discount Series 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. Find the net decimal equivalent by multiplyingthe complements of each discount rate. 0.70 x 0.80 x 0.90 = 0.504 Subtract the net decimal equivalent (0.504)from “1” to find the single discount equivalent. The result is 0.496 (or 49.6%). Use the single discount equivalent to calculate thetrade discount on a $3,200 lawn tractorwith a discount series of 30/20/10.

  30. Single discount equivalent The complement of the net decimal equivalent. It is the decimal equivalent of a single discountrate 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. Key Terms… Section 8-2 Trade Discount Series

  31. EXERCISE SET A Practice Question 6. Find the decimal equivalents of complements, net decimal equivalent, and net price. Round the net price to the nearest cent. Decimal equivalents of complements = 0.8 and 0.9; net decimal equivalent = 0.8(0.9) = 0.72 net price = 0.72($200) = $144

  32. EXERCISE SET A Practice Question 7. Find the decimal equivalents of complements, net decimal equivalent, and net price. Round the net price to the nearest cent. Decimal equivalents of complements = 0.85 and 0.95 net decimal equivalent = 0.85(0.95) = 0.8075 net price = 0.8075($99.99) = $80.74

  33. EXERCISE SET A Practice Question 8. Round to the nearest hundredth of a percent when necessary. % form = 0.6835(100%) = 68.35% Single discount equivalent = 100% - 68.35% = 31.65%

  34. EXERCISE SET A Practice Question 9. Find the single discount equivalent in percent form for the discount series 20/10. 0.8(0.9) = 0.72 = 72% net decimal equivalent in percent form 100%  72% = 28% single discount equivalent

  35. EXERCISE SET A Practice Question 10. Find the single discount equivalent in percent form for the discount series 10/5. 0.9(0.95) = 0.855 = 85.5% net decimal equivalent in percent form 100%  85.5% = 14.5% single discount equivalent

  36. EXERCISE SET A Practice Question 11. Find the trade discount on a suit listed for $165 less 12%. $165(0.12) = $19.80

  37. EXERCISE SET A Practice Question 12. The list price on slacks is $22, and the list price on jumpers is $37. If Petit’s Clothing Store orders 30 pairs of slacks and 40 jumpers at a discount rate of 11%, what is the trade discount on the purchase? 30($22) = $660 slacks; 40($37) = $1,480 jumpers $660 + $1,480 = $2,140 total list price $2,140(0.11) = $235.40 trade discount

  38. EXERCISE SET A Practice Question 13. A trade discount series of 10/5/5 is offered on a printer, which is listed at $800. Also, a trade discount series of 5/10/5 is offered on a desk chair listed at $250. Find the total net price for the printer and the chair. Round to the nearest cent. 0.9(0.95)(0.95) = 0.81225 net decimal equivalent $800(0.81225) = $649.80 net price of printer 0.95(0.9)(0.95) = 0.81225 net decimal equivalent $250(0.81225) = $203.06 net price of desk chair $649.80 + $203.06 = $852.86 total net price

  39. Learning Outcomes 8-3 • Find the cash discount and the net amount usingordinary dating terms. • Interpret and apply EOM and ROG terms. • Find the amount credited and outstanding balance from partial payments. • Interpret freight terms.

  40. Find the cash discount and the netamount using ordinary dating terms Bills are often due within thirty days from the date of the invoice. To encourage prompt payment, companies offer an incentive of a cash discountif the invoice is paid within a specified period. 8-3-1 Section 8-3 Cash Discounts and Sales Terms 2/10 n/30 means “take a 2% cash discountif paid within 10 days; pay the net priceif paid within 30 days”.

  41. Find the cash discount for an invoice datedDecember 1 for $1,500 with terms of 2/10 n/30. If the invoice is paid on December 9th, forexample, the payment would include thediscount 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. Find the cash discount HOW TO: Section 8-3 Cash Discounts and Sales Terms

  42. Annie’s Plants has received an invoice for $450 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. Examples… Section 8-3 Cash Discounts and Sales Terms

  43. Find the cash discount HOW TO: Section 8-3 Cash Discounts and Sales Terms • To calculate the exact number of days for a cash discount, you must know how many days are in eachmonth, so if you are not sure…learn them. • Using a chart is usually the most reliable.

  44. An invoice of $500 which reads 2/10 n/30 tellsyou that a discount of 2% is available ifthe payment is made within 10 days. To calculate the net amount directly, use thecomplement 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 Find the cash discount HOW TO: Section 8-3 Cash Discounts and Sales Terms

  45. 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 An Example… Section 8-3 Cash Discounts and Sales Terms Sycamore Enterprises received a $1,248 billfor computer supplies dated September 3,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.

  46. Interpret and apply EOM(End-of-Month) Terms An invoice might be 2/10 EOM—meaning a 2% discount is allowed if the bill is paid during thefirst month or up until 10days of the month afterthe 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. 8-3-2 Section 8-3 Cash Discounts and Sales Terms

  47. An invoice dated March 4, with terms of 3/15 EOM. A 3% discount would be applicable until April 15. An August 25 invoice with terms of 5/10 EOM. A 5% discount would apply until September 10. December 2 with terms of 2/20 EOM. 2% discount until January 20. Examples… Section 8-3 Cash Discounts and Sales Terms

  48. 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. EOM (End-of-Month) terms Section 8-3 Cash Discounts and Sales Terms An invoice dated April 27with terms of 3/10 EOM would be eligible for the discount if the billis paid on or before June 10.

  49. Interpret and apply ROG(Receipt-of-Goods) 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. Sales terms stating 1/10 ROGmeans that a 1%discount is applicable 10 days after the goods are received, Not when the invoice is dated. 8-3-3 Section 8-3 Cash Discounts and Sales Terms Multiply the invoice amount timesthe complement of the discount rate.

  50. 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 An Example… Section 8-3 Cash Discounts and Sales Terms

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