Copyright © 2008 Pearson Education Canada5-1 Chapter 5 Trade Discount, Cash Discount, Markup, and Markdown Contemporary Business Mathematics With Canadian Applications Eighth Edition S. A. Hummelbrunner/K. Suzanne Coombs PowerPoint: D. Johnston
Copyright © 2008 Pearson Education Canada5-2 Objectives After completing chapter six, the student will be able to: Solve trade discount problems. Calculate an equivalent rate of discount for a discount series. Apply three methods of cash discounting. Solve problems involving markup based on selling price or cost and markdown.
Copyright © 2008 Pearson Education Canada5-3 Merchandising Chain As a product is purchased and sold along a chain, each merchandiser adds a markup above the cost of buying to the merchandise.
Copyright © 2008 Pearson Education Canada5-4 Terminology Used in the Merchandising Chain
Copyright © 2008 Pearson Education Canada5-5 Trade Discounts Facilitate establishment of price differentials for different groups of customers. Facilitate the communication of changes in prices. Reduce the cost of making changes in prices in published catalogues. Stated as a percent of list price or MSRP.(Rate of discount) Subtracted from the list price to give the net price.
Copyright © 2008 Pearson Education Canada5-6 Trade Discount Formulas
Copyright © 2008 Pearson Education Canada5-7 Using Trade Discount Formulas
Copyright © 2008 Pearson Education Canada5-8 Calculating the List Price
Copyright © 2008 Pearson Education Canada5-9 Finding the Rate of Discount
Copyright © 2008 Pearson Education Canada5-10 Computing Net Price Using the Net Factor
Copyright © 2008 Pearson Education Canada5-11 Discount Series List price may be subject to two or more discounts. Additional discounts are offered to encourage large volume orders and early orders for seasonal items. Additional discounts may be offered to different members of the merchandising chain.
Copyright © 2008 Pearson Education Canada5-12 Discount Series
Copyright © 2008 Pearson Education Canada5-13 Another Approach to Discount Series
Copyright © 2008 Pearson Education Canada5-14 Single Equivalent Rates of Discount (Method 1)
Copyright © 2008 Pearson Education Canada5-15 Single Equivalent Rate of Discount (Method 2)
Copyright © 2008 Pearson Education Canada5-16 Formula for Single Equivalent Rate of Discount For every discount series, a single equivalent rate of discount exists. Eq. Disc. = 1- (1-d1)(1-d2)(1-d3)…(1-dn)L
Copyright © 2008 Pearson Education Canada5-17 Cash Discount Reduction to encourage prompt payment Rate of discount - percent of net amount after trade discounts have been taken Discount period - time period during which cash discount applies Credit period - time period during which invoice must be paid
Copyright © 2008 Pearson Education Canada5-18 Interpretation of Payment Terms
Copyright © 2008 Pearson Education Canada5-19 Methods for Offering Cash Discounts Ordinary Dating End of Month (E.O.M.) - proximo Receipt of Goods (R.O.G.)
Copyright © 2008 Pearson Education Canada5-20 Ordinary Dating
Copyright © 2008 Pearson Education Canada5-21 End-of-Month or Proximo
Copyright © 2008 Pearson Education Canada5-22 Receipt of Goods (R.O.G.)
Copyright © 2008 Pearson Education Canada5-23 Partial Payment
Copyright © 2008 Pearson Education Canada5-24 Markup
Copyright © 2008 Pearson Education Canada5-25 Rate of Markup
Copyright © 2008 Pearson Education Canada5-26 Finding the Rate of Markup
Copyright © 2008 Pearson Education Canada5-27 Finding the Selling Price
Copyright © 2008 Pearson Education Canada5-28 Markdown Reduction in price of article sold to customer. Stated as a percent of the price to be reduced. Computed as if it were a discount.
Copyright © 2008 Pearson Education Canada5-29 Markdowns
Copyright © 2008 Pearson Education Canada5-30 Summary Trade discounts facilitate the pricing of goods along the merchandising chain from the manufacturer to the consumer. Cash discounts are price reductions which encourage prompt payment of invoices. Markups allow the retailer to set a price to cover cost, expenses, and profit.