TRADE AND CASH DISCOUNT REV 00 CHAPTER 5 TRADE AND CASH DISCOUNT DDG 1113 BUSINESS MATHEMATICS

REV 00 5.1 TRADE DISCOUNT Trade discount is a reduction from the list price offered by wholesalers to retailers so they can resell the merchandise at a profit. The amount of discount that retailers receive from wholesalers is known as trade discount amount. Trade discount = List price – Net price Trade discount rate is normally a manufacturer quotes a discount rate in percentage to the retailer. The trade discount rate must be calculated on the list price. DDG 1113 BUSINESS MATHEMATICS

The Formula for calculating the net price is NP= L ( 1-r) Example 1 pg 94 The list price of a leather belt is RM 180. a trade discount of 30% is offered. What is the net price of the belt? DDG 1113 BUSINESS MATHEMATICS

Example 2 pg 95 Weendy jean offers a discount of 32 ¼ % on all the jeans it sells. What is the net price of a pair of jeans that is listed at RM 420? Example 3 pg 95 The net price of a camera with 40% trade discount is RM 480. what is the list price. DDG 1113 BUSINESS MATHEMATICS

Find the net prices of the item for the two shops. Example 4 pg 95 A bill of RM 1200 including a prepaid handling charge of RM 200 is offered a trade discount of 15%. What is the net price? Example 5 pg 95 Blue Danube sells an item for RM 100 less 20% while Yellow River sells the same item for RM 120 less 40% Find the net prices of the item for the two shops. What further discount percentage must offered by the shop that sells at a higher net price in order to meet the competitor’s price? DDG 1113 BUSINESS MATHEMATICS

REV 00 5.2 CHAIN DISCOUNT A trade discount in a series of two or more successive discounts. Wholesaler lists the chain discount as a group, for example 15%, 10%, 5%. These discounts might also be given in circumstances such as when a large quantity is ordered. NP = L(1 - r1) (1 – r2) (1 – r3) Where: NP = Net price L = List price DDG 1113 BUSINESS MATHEMATICS 6

Example 1 pg 97 A computer is advertised for RM 4800 less 20% and 10%. Find a) The net price b) The total discount. Example 2 pg 98 A television set with a catalogue price of RM2500 is offered a chain discount lf 30%, 10% and 5%. Calculate the net price. Example 3 pg 98 A washing machine is advertised at RM 2000 less RM 40%, 12% and 2 ½ %. Find the net price. DDG 1113 BUSINESS MATHEMATICS

5.3 SINGLE DISCOUNT EQUIVALENT REV 00 5.3 SINGLE DISCOUNT EQUIVALENT A single discount equivalent is a single discount which is equivalent to a chain discount. The single discount equivalent, r for a chain discount of r1, r2 and r3 is given by: r = 1 – (1 - r1) (1 – r2) (1 – r3) DDG 1113 BUSINESS MATHEMATICS

Example 1 pg 99 A product is advertised at RM 1500 less 20%, 10% and 5%. Find a) The single discount equivalent, b) The net price. Example 2 pg 99 Find the single discount equivalent of 10% and 3% DDG 1113 BUSINESS MATHEMATICS

REV 00 5.4 CASH DISCOUNT Cash discounts are often stated under the heading of invoice as, for example 3/10, 2/20, n/30. This means, if the buyer pays the invoice within 10 days of the invoice date, the buyer is entitled to receive a 3% discount or, if payment is made within 20 days from the invoice date, the buyer will receive a 2% discount. N/30 (sometimes written net 30) means the credit period is 30 days. DDG 1113 BUSINESS MATHEMATICS

Example 1 pg100 An invoice dated 2 January 2005 for RM 4010 was offered cash discount terms of 1/10, n/30. if the invoice was paid on 11 January 2005, what was the payment? Example 2 pg 101 An invoice dated 10 April 2005 for RM 2300 was offered cash discount terms if 3/10, 2/20, n/60. find the payment if the invoice was paid on 28 April 2005? Example 3pg 101 The total of an invoice with cash discount terms if 3/10, n/30 amounts to RM 2090 which includes a prepaid freight charge of RM 50. find the amount that is needed to pay the invoice within the cash discount period. DDG 1113 BUSINESS MATHEMATICS

Borrowing to take advantage of the cash discount Not many businesses have sufficient cash in hand to take advantage if the cash discounts offered. Many if these companies borrow form banks using short term loans to take advantage of the offer. DDG 1113 BUSINESS MATHEMATICS

Example 1 pg 102 On 20 may, Mei Lan purchased some goods invoiced at RM 3000 with cash discount terms of 3/10, n/30. in order to pay the invoice on 30 May, she borrowed the money for 20 days at 9% per annum simple interest. How much did she save by borrowing to the advantage of the discount? DDG 1113 BUSINESS MATHEMATICS

5.5 PARTIAL PAYMENT OF INVOICE REV 00 5.5 PARTIAL PAYMENT OF INVOICE If a buyer pays only part of the invoice within the discount period, he receives a proportionate fraction of the cash discount that is offered. He will only receive the full amount of the cash discount if he settles all the payment DDG 1113 BUSINESS MATHEMATICS

Example 1pg 102 An invoice amounting to RM 3000 and dated 15 July 2004 offered cash discount terms of 10/15, n/30. find the amount outstanding if the buyer paid RM 1000 on 20 July 2004 Amount paid = (credit given) x (1- discount rate) DDG 1113 BUSINESS MATHEMATICS

Trade and Cash Discount Example 1 pg 103 An invoice of RM 10 000 and dated 18 April 2005 was offered 25% trade discount and cash discount terms of 9/10, n/30. find a) The trade discount offered, b) The cash discount offered c) The net payment if the invoice was paid on 28 April 2005 DDG 1113 BUSINESS MATHEMATICS

Example 2pg 104 An invoice of RM 9000 dated 19 April 2005 was offered 13% trade discount and cash discount terms of 3/10, n/30. find the net payment if the invoice was paid on 30 April 2005. DDG 1113 BUSINESS MATHEMATICS