1. Marketing Essentials
Calculating Prices

2. Calculating Prices SECTION 27.1
What You'll Learn
How a firm's net profit or loss is related to pricing
How to calculate dollar and percentage markup based on cost or retail
How to calculate markdown in dollars, and how to determine sale price and maintained markup

3. Calculating Prices SECTION 27.1
Why It's Important
Now that you understand the principles of pricing, it is time to learn how to calculate prices. Wholesalers and retailers, as well as manufacturers and service businesses, need to perform mathematical calculations to determine the prices they will charge their customers.
You learned earlier that pricing is related to a company's profitability; now you will learn how they are related.

4. Calculating Prices SECTION 27.1 gross profit maintained markup
Key Terms
gross profit
maintained markup

5. Calculating Prices SECTION 27.1 Profit vs. Markup
A business’s profit is not the same as its markup. Markup is the difference between the cost of an item and the retail price. Profit is what’s left over after all other expenses have been paid.
A businessperson says “We made a profit of $50—buying the radio for $100 and selling it for $150.” The businessperson is only partially correct. The difference between the retail price of $150 (which is equal to 100 percent) and the $100 cost (66 2/3 percent) is the markup of $50 (33 1/3 percent), not the profit. Profit is the amount left from revenue after the costs of the merchandise and expenses have been paid. The markup on an item, however, is similar to gross profit. Gross profit is the difference between sales revenue and the costs of goods sold. Expenses must still be deducted in order to get net (actual) profit. Therefore, a business must have a markup high enough to cover expenses and provide the profit sought to be successful.

6. Calculating Prices SECTION 27.1 Basic Markup Calculations
Retailers and wholesalers use the same formulas to calculate markup. The most basic pricing formula is the one for calculating retail price:
Cost (C) + markup (MU) = retail price (RP)
Two other formulas can be derived from this formula:
Retail price (RP) – markup (MU) = cost (C)
Retail price (RP) – cost (C) = markup (MU)
Retailers and wholesalers use the same formulas to calculate markup. We will use only retail prices here to make these formulas easier to understand. Note, however, that wholesale prices can be substituted in any of the formulas.
The most basic pricing formula is the one for calculating retail price. It states in mathematical terms a relationship—retail price is a combination of cost and markup. Knowing these two figures will enable you to calculate retail price:
cost (C) + markup (MU) = retail price (RP)
$ $ = $20
Two other formulas can be derived from this formula:
Retail price (RP) – markup (MU) = cost (C)
$ $ = $14
Retail price (RP) – cost (C) = markup (MU)
$ $14 = $6
You will rely on these three formulas throughout this chapter. The formulas and their terms will be cited in abbreviated form (as C + MU = RP) from this point on.

7. Calculating Prices SECTION 27.1 Practice 1
Use the retail price formula and its variations to do the following problems.
A calculator costs AB Products $15, and the markup is $10. What is its retail price?
A tennis racket retails for $175, and its markup is $85. What is the cost?
$25 ($ = $25)
$90 ($175 – 85 = $90)

8. Calculating Prices SECTION 27.1 Percentage Markup
In most business situations, the markup figure is expressed as a percentage MU(%), rather than a dollar figure MU($).
Most sellers compute markup based on retail price rather than cost because:
the markup on retail sounds smaller
future markdowns are calculated on retail
profits are calculated on sales revenue
In most business situations, the markup figure is expressed as a percentage MU(%), rather than a dollar figure MU($).
Expressing markup in either dollar of percentage from is not the only choice that wholesalers and retailers have in making markup calculations. They may also elect to compute their markup on either cost or retail price if they choose to use the percentage form.
Most choose to base the markup on retail price for three reasons. First, the markup on the retail price sounds like a smaller amount. This sounds better to customers and may encourage customers to buy because the price seems reasonable. Second, future markdowns and discounts are calculated on a retail basis. Third, profits are generally calculated on sales revenue. It makes sense to use markup on retail prices when comparing and analyzing data that play a role in a firm’s profits.
Step 1: Determine the dollar markup.
RP – C = MU ($)
$ $49.50 = $33.00
Step 2: To change the dollar markup to the percentage markup, divide it by the retail price. The result will be a decimal.
MU($) / RP = MU (%) on retail
$33.00 divided by $82.50 = .40
Step 3: Change the decimal to a percentage. This figure is the percentage markup on retail.
.40 = 40%
Shift decimal point two places right.
Retailers may find the percentage markup on cost to be helpful. The calculation is the same, except for Step 2.
RP – C = MU($)
Step 2: To change the dollar markup to the percentage markup, divide by cost.
MU($) / C = MU(%) on cost
$33.00 divided by $49.50 = .6667
Step 3: Change the decimal to a percentage. This figure is the percentage markup on cost.
.6667 = 66.67%

9. Calculating Prices SECTION 27.1 Practice 2
Calculate the percentage markup in each of these situations.
The retail price of a coffee mug is $10.99 and the cost is $ What is the percentage markup based on cost price? Based on retail price?
An electric sander costs $69.74, and its markup is $ Find it percentage markup on cost price. Calculate the retail price, and then calculate its percentage markup on retail price.
A gallery sells a framed print for $100, and its markup is $50. What is its percentage markup on cost price? On retail price?
69.0% cost (10.99 – 6.50 = 4.49; 4.49 divided by 6.50 = .690) ; 40.85% retail ($10.99 – 6.50 = $4.49; $4.49 divided by $10.99 =.4085)
33.3% cost (23.25 divided by = .333); RP ( = RP); 25% retail (23.25 divided by $92.99 = .25)
100% cost (50 divided by 50 = 1); 50% retail (50 divided by 100 = .5)

10. Calculating Prices SECTION 27.1 Markup Equivalents Table 4.8% 5.0%
The markup equivalents table lists markup percentages based on retail and the equivalent percentages based on cost. To use the table, you locate the percentage markup on retail and read its markup on cost equivalent in the adjacent column or vice versa. The table allows users to quickly convert markups on retail to markups on cost and vice versa.
Markup on Retail
Markup on Cost
4.8%
5.0%
11.0%
12.4%
5.0
5.3
11.1
12.5
6.0
6.4
12.0
13.6
7.0
7.5
14.3
8.0
8.7
13.0
15.0
9.0
10.0
14.0
16.3
17.7
10.7
16.0
19.1
A markup equivalents table lists markup percentages based on retail and the equivalent percentages based on cost. To use the table, you locate the percentage markup on retail and read its cost equivalent in the adjacent column or vice versa.

11. Calculating Prices SECTION 27.1 Cost Method of Pricing
Sometimes marketers know only the cost of an item and its markup on cost. In such a situation, they use the cost method of pricing:
Multiply the cost by the percentage markup on cost in decimal form:
C x MU(%) = MU($)
Add the dollar markup to the cost to get the retail price:
C + MU($) = RP
Sometimes marketers know only the cost of an item and its markup on cost. In such a situation, they use the cost method of pricing. Consider a board game that a toy store buys for $8.50 and sells for cost plus a 40-percent markup on cost. To arrive at the retail price, follow these steps:
Step 1: Determine the dollar markup on cost. Multiply the cost by the percentage markup on cost in decimal form.
C X MU(%) = MU($)
$8.50 x .40 = $3.40
Step 2: Add the dollar markup to the cost to get the retail price.
C + MU)$) = RP
$ $3.40 = $11.90
Slide 1 of 2

12. Calculating Prices SECTION 27.1 Cost Method of Pricing
If you know the cost and the markup on retail, use the markup equivalents table to convert markup on retail to markup on cost, then calculate, using the cost method of pricing:
Multiply the cost by the percentage markup on cost in decimal form:
C x MU(%) = MU($)
Add the dollar markup to the cost to get the retail price:
C + MU($) = RP
Often, the situation isn’t that simple. Suppose you have the cost, but the only markup figure you know is the markup on retail. What will you do? You cannot use the markup percentage on retail to calculate the markup in dollar unless you know the retail price. This is the prefect time to use the Markup Equivalents Table. You can convert the markup on retail to the markup on cost and apply it to the cost of the item to arrive at the markup in dollars.
Slide 2 of 2

13. Calculating Prices SECTION 27.1 Cost Method of Pricing
Step 1: Use the markup equivalents table to get all the information in the same (cost) form. Find the cost equivalent of a 33.3 percent markup on retail.
Markup on Retail Markup on Cost
Step 2: Apply the cost method to determine the retail price. First calculate the dollar markup on cost.
C X MU(%) = MU($)
$8.00 X .50 = $4.00
Step 3: Then calculate the retail price.
C + MU($) = RP
$ $4.00 = $12.00
Here’s an example: A marketer knows that the customary markup for a particular cosmetics firm is 33.3 percent on retail and that the cost of its most popular lipstick is $ To project the lipstick’s retail price, follow these steps:
Step 1: Use the markup equivalents table to get all the information in the same (cost) form. Find the cost equivalent of a 33.3 percent markup on retail.
Markup on Retail Markup on Cost
Step 2: Apply the cost method to determine the retail price. First calculate the dollar markup on cost.
C X MU(%) = MU($)
$8.00 X .50 = $4.00
Step 3: Then calculate the retail price.
C + MU($) = RP
$ $4.00 = $12.00
Slide 2 of 2

14. Calculating Prices SECTION 27.1 Typical Markup Percentage
Product Category
Typical Markup Percentage Based on Cost
Small Appliances (microwave, coffee maker)
Large Appliances (refrigerator, dryer)
Automobiles
Automobile Accessories (sunroof, CD player)
Clothing
30%
15%-20%
5-10%* (*note dealers make money on factor incentives and sale of accessories)
15-20%
100%
Markup percentages vary with the type of product and business. How would you determine how much a microwave, whose retail price was $159.99, cost when all you knew was the markup percentage based on cost noted in the above table? What would be its cost in dollars?

15. Calculating Prices SECTION 27.1 Retail Method of Pricing
If you know only the cost and markup on retail, you can use the retail method of pricing to compute the retail price.
Determine what percentage of the retail price is the cost:
RP(%) - MU(%) = C(%) (retail price would be 100%)
Determine the retail price by dividing the cost by the decimal equivalent of the cost percentage:
C($) / C(%) = RP
Calculate the dollar markup:
RP - C = MU($)
Another way to compute the retail price when all you know are cost and the markup on retail is to use the retail method. This method is based on changing the information that you already have into retail figures.
Let’s consider an example: The owner of a sporting goods store wants to know what the markup and retail price should be for an sun visor that costs $ His customary markup on retail is 40 percent. Thus, in algebraic terms 40 percent of “X” equals the retail price. The steps that he follows in his calculation are as follows:
Step 1: Determine what percentage of the retail price is equal to cost. This is a matter of subtracting the known retail markup figure from 100%, which represents the retail price.
RP(%) – MU(%) = C(%)
100% - 40% = 60%
Step 2: To determine the retail price, divide the cost by the decimal equivalent of the percentage calculated in Step 1.
$6.75 divided by .60 = $11.25
Step 3: Calculate the dollar markup.
RP – C = MU($)
$ $6.25 = $4.50
Step 4: Check your work by multiplying the retail price you calculated in Step 2 by the percentage markup on retail given originally. The answer will match the dollar markup you calculated in Step 3, if your retail price is correct.
RP X MU(%) = MU($)
$11.25 X .40 = $4.50

16. Calculating Prices SECTION 27.1 The Retail Box
To compute retail price using the retail method, fill in the boxes following the letter sequence (J-O). Note that the box labeled “J” (RP%) is always 100%. The amounts that go in the boxes labeled K (MU%) and O (C$) are usually known. Why is this retail box an example of the retail method for calculating markup?
$ % $ %
Retail Price M J Retail Price M J
Markup N K Markup N K
Cost O L Cost O L
You can use a visual device called the retail box to help you remember this sequence of calculations. This retail box organizes your information and makes it simple to check your work.
To compute retail price using the retail method, fill in the boxes following the letter sequence (J-O). Note that the box labeled “J” (RP%) is always 100%. The amounts that go in the boxes labeled K (MU%) and O (C$) are usually known. Why is this retail box an example of the retail method for calculating markup?

17. Calculating Prices SECTION 27.1 Practice 3
Calculate retail price and markup in these two problems by using the retail method.
Find the retail price and dollar markup for a hand-made sweater that costs the Woolens Closet $90 and has a 40% markup on retail.
A machine-made sweater costs the Woolens Closet $30 and has a 60% markup on retail. Calculate this sweater’s retail price and dollar markup.
$150 ($90 divided by .60 = $150)
$75 ($30 divided by .40 = $75)

18. Calculating Prices SECTION 27.1 Calculations for Lowering Prices
When a business lowers its prices, a new sale price must be calculated, as well as a new markup. To calculate a markdown, determine the markdown percentage on retail. Then:
Determine the dollar markdown by multiplying the retail price by the percentage markdown:
RP x MD(%) = MD($)
Subtract the dollar markdown from the retail price to get the sale price:
RP - MD($) = SP
When a business lowers its prices, a new sale price must be calculated, as well as a new markup. Let’s look at the steps used in calculating markdowns (lowered prices), maintained markups (new markup), and the actual sales prices derived from these calculations.
To reduce the quantity of goods in stock, a business will sometimes mark down merchandise by a certain percentage (MD(%)). This reduction is based on the retail price. Consider as an example a record store that wants to mark down by 25% compact disks that originally sold for $16. The steps for calculating the sale price (SP) are as follows:
Step 1: Determine the dollar markdown. Multiply the retail price by the percentage markdown.
RP X MD(%) = MD ($)
$16 X .25 = $4
Step 2: To determine the sale price, subtract the markdown from the retail price.
RP – ($) = SP
$16 - $4 = $12
Slide 1 of 2

19. Calculating Prices SECTION 27.1 Calculations for Lowering Prices
There is another, simpler way to calculate the sale price:
Subtract the markdown percentage from 100% (representing retail price):
RP(%) - MD(%) = SP (%) (RP = 100%)
Multiply the retail price by the decimal equivalent of the percentage sale price:
RP x SP(%) = SP($)
Another way to arrive at the same answer is to consider what percentage of the original price will equal the sale price. The procedure is still tow steps long, but the percentage calculation is so easy that you can probably do it in your head and save some time. Here are the steps involved:
Step 1: Determine what percentage of the original price will equal the sale price. This is simply a matter of subtracting the markdown percentage from 100 percent.
RP(%) – MD(%) = SP(%)
100% - 25% = 75%
Step 2: To find the sale price, multiply the retail price by the decimal equivalent of the percentage calculated in Step 1.
RP x SP(%) = SP
$16 X .75 = $12
Slide 2 of 2

20. Practice 4 Calculating Prices Calculate the sale price.
SECTION 27.1
Calculating Prices
Practice 4
Calculate the sale price.
A suit that sells for $225 is to be marked down 40 percent. What is its new price?
$135 (100% - 40% = 60%; $225 X .60 = $135)

21. Calculating Prices SECTION 27.1 Maintained Markup
When a marketer marks down goods, the markup and markup percentage change. The difference between an item's final sale price, and its cost is called the maintained markup.
To determine the maintained markup:
Calculate the new sale price:
RP(%) - MD(%) = SP (%)
RP x SP(%) = SP($) continued
When a marketer marks down goods, the markup and markup percentage change. The difference between an item’s final sale price and its cost is called the maintained markup.
Businesses must plan for markdowns, as they are part of being profitable and competitive in the marketplace. Reductions in the original retail price include employee discounts, damaged goods allowances, and special sales events. For businesses to enjoy the profit margin they need to be successful, these factors must be considered. Thus, the concept of maintained markup becomes extremely important in planning the original price of the time and all future markdowns.
Let’s consider an example. Assume that a cassette recorder that cost ZAP Electronics $25 and originally sold for $50 is marked down 20%. The maintained markup (expressed in both dollars and as a percentage) is calculated as follows:
Step 1: Calculate the new sale price.
100% - 20% = 80%
$50 X .80 = $40
Slide 1 of 2

22. Calculating Prices SECTION 27.1 Maintained Markup
continued
Subtract the cost from the sale price to determine maintained markup (MM($)):
SP - C = MM($)
Divide the maintained markup in dollars by the sale price to determine the maintained percentage:
MM($) / SP = MM(%)
Step 2: To determine the maintained markup in dollars (MM$), subtract the cost from the sale price.
SP – C = MM($)
$40 - $25 = $15
Step 3: To determine the maintained markup percentage, divide the maintained markup in dollars by the sale price.
MM($) divided by SP = MM(%)
$15 ÷ $40 = .375
.375 = 37.5%
Slide 2 of 2

23. Practice 5 Calculating Prices SECTION 27.1
Now try the same type of computation on your own.
A hand-held computer that costs Compco Industries $126 to stock sells for $350 (retail price). The firm wants to mark down the computer 20 percent. Determine the sale price and maintained markup in dollars, and then calculate the maintained markup percentage.
$280 sale price ($350 X .80 = $280)
$154 MM$ ($280 – 126 = 154)
55% MM% ( $154  $280 = .55)

24. Reviewing Key Terms and Concepts
ASSESSMENT
27.1
Reviewing Key Terms and Concepts
1. Explain how a firm's net profit or loss is related to pricing.
2. How are the dollar and percentage markups based on cost and based on retail calculated? Illustrate the formulas for a book that costs $13.99 and has a retail price is $19.99.
3. Assume that an item that cost $125 and currently retails for $ (RP) is going to be marked down 40 percent for a special sale. Calculate the new sale price, as well as the maintained markup in dollars and as a percent.

25. ASSESSMENT Thinking Critically 27.1
If a buyer wanted to buy goods that cost $100 and the customary markup on retail was 40 percent, what two methods could the buyer use to calculate the retail price? Explain.

26. Calculating Discounts
Marketing Essentials
Calculating Discounts

27. Calculating Discounts
SECTION 27.2
Calculating Discounts
What You'll Learn
The general procedure for figuring discounts
How to calculate various kinds of discounts

28. Calculating Discounts
SECTION 27.2
Calculating Discounts
Why It's Important
Discounts affect the final price a customer will pay. Therefore, it is essential that you learn how to calculate discounts and the net price payable.

29. Calculating Discounts
SECTION 27.2
Calculating Discounts
Key Terms
employee discounts

30. Calculating Discounts
SECTION 27.2
Calculating Discounts
Discounts
A discount is a reduction in the price of goods and services sold to customers. Calculating discounts involves two steps:
Multiply the price (P) by the discount percentage [D(%)] to get the dollar amount of the discount [D($)]:
P X D(%) = D($)
Subtract the discount from the price to get the net price (NP), or the amount that the customer will actually pay:
P – D($) = NP
Recall that a discount is a reduction in the price of goods and services sold to customers. Retailers may offer discounts to their employees as a job benefit or to encourage their employees to purchase their goods. Manufacturers and distributors offer discounts to their customers to encourage prompt payment and stimulate business.
The general procedure for calculating discounts involves two steps:
Step 1: Multiply the price (P) by the discount percentage (D(%)) to get the dollar amount of the discount (D($)).
P X D(%) = D($)
Step 2: Subtract the discount from the price to get the net price (NP), or the amount that the customer will actually pay.
P – D($) NP
Here is an example. A business is offering a 35% discount on an item that sells for $150.
$150 X .35 = $52.50 ($)
$150 – = $97.50 NP
You can simply subtract the discount percent from 100% to determine net price’s equivalent percentage to determine the net price. Then multiply the original price by that percentage to get the net price. Using the above example, those calculations would be as follows:
100% - 35% = 65%
$150 X 65% = $97.50 NP

31. Calculating Discounts
SECTION 27.2
Calculating Discounts
Employee Discounts
Businesses offer employee discounts to encourage workers to buy the products they sell or manufacture. Employees who buy and use their company's products project confidence in and enthusiasm about them. Employee discounts can range from 10 to 30 percent for entry-level employees and as high as 50 percent for top-level executives.
Businesses offer employee discounts to encourage workers to buy the products they sell or manufacture. Employees who buy and use their company’s products project confidence in and enthusiasm about the products. Employee discounts can range from 10% to 30% for entry-level employees and as high as 50% or more for top-level executives.

32. Calculating Discounts
SECTION 27.2
Calculating Discounts
Discounts from Manufacturers and Distributors
Some common types of discounts offered by manufacturers and distributors are:
cash
trade
quantity
seasonal
promotional discounts
Some common types of discounts offered by manufacturers and distributors are cash, trade, quantity, seasonal, and promotional discounts, all of which have already been covered. This section is devoted to explaining how each of these types of discounts is calculated.

33. Calculating Discounts
SECTION 27.2
Calculating Discounts
Cash Discounts
A cash discount is a discount offered to buyers to encourage them to pay their bills quickly. With the invoice terms 3/15, net 60, the first number (3) represents the percentage of the discount applicable to the invoice total (P).
A cash discount is a discount offered to buyers to encourage them to pay their bills quickly. Consider the invoice terms 3/15, net 60. Recall that the first number (3) represents the percentage of the discount applicable to the invoice total.
Slide 1 of 2

34. Calculating Discounts
SECTION 27.2
Calculating Discounts
Cash Discounts
To calculate the cash discount:
Determine the dollar discount:
P x D(%) = D($)
Determine the net price:
P - D($) = NP
To determine a cash discount on a unit price, do the same calculation, with P equaling the unit price.
When that total is $1000 and the customer takes advantage of the discount, the calculations are as follows:
Step 1: Determine the dollar discount.
P X D(%) = D($)
$1000 x .03 = $30
Step 2: Determine the net price.
P – D($) = NP
$ $30 = $970
Cash discounts can also be calculated on a unit basis. The net unit price for 100 items at $10 each listed on the invoice is determined as follows:
$10 X .03 = $.30
Step 2: Determine the net price.
$10 - $.30 = $9.70
The net amount payable by the customer would still be the same, of course--$9.70 ($9.70 x 100)
Slide 2 of 2

35. Calculating Discounts
SECTION 27.2
Calculating Discounts
Trade Discounts
Trade discounts are based on manufacturers' list prices. They are calculated in the same way as cash discounts:
Determine the dollar discount:
P x D(%) = D($)
Determine the net price:
P - D ($) = NP
You may recall that trade discounts are based on manufacturers’ list prices. They are really not discounts at all, but rather the way manufacturers quote prices to wholesalers and retailers. Trade discounts are called trade discounts because different prices are offered to different lines of trade(i.e. wholesalers vs. retailers). They are calculated in the same way as cash discounts. To figure a 40% trade discount for an invoice totaling $5789, you would do the following:
Step 1: Determine the dollar discount.
P X D(%) = D($)
$5789 X .40 = $
Step 2: Determine the net price.
P – D($) = NP
$5789 – $ = $
Invoices containing several items have a trade discount that is applied to each item separately to determine its net unit price to the business.

36. Calculating Prices Practice 6 SECTION 27.1
Determine the amounts payable by the following customers.
Southbend Trucking receives an invoice in the amount of $250,000 showing the terms 2/10, net 30. The invoice lists five trucks at $45,000 each. If Southbend takes advantage of the discount, what will be the net amount due on the invoice? The net price per truck?
A manufacturer gives retailers a 55-percent trade discount. The invoice received by Wright’s Department Store totals $180,775; what is the amount of the store’s discount? What is the amount payable to the manufacturer?
Net amount on invoice $220,500 ($45,000 X 5 = 225,000 X .98) Net amount per truck $44,100 ($45,000 X .98)
$99, discount ($180,775 X .55); $81, amount payable ($180,775 - $99,426.25)

37. Calculating Discounts
SECTION 27.2
Calculating Discounts
Quantity Discount
Quantity discounts are offered to buyers for placing large orders. Quantity discounts may be quoted as either a percentage of price or as part of a quantity price list.
You may recall that quantity discounts are offered to buyers for placing large orders. Sellers benefit from large orders from the lower selling costs involved in one transaction as opposed to several small transactions. They are meant to encourage buyers to buy in bulk and purchase more merchandise than they originally intended to purchase
Slide 1 of 2

38. Calculating Discounts
SECTION 27.2
Calculating Discounts
Quantity Discount
Using a quantity price list:
No. of items
Unit price $ $ $.85
If you purchased 50 items, you would pay $.85 each. Your total bill would be $42.50 ($.85 X 50).
A cumulative discount is quoted as a percentage and is calculated like a cash discount.
Quantity discounts may be quoted as either a percentage of price or as part of a quantity price list like this:
No. of items
Unit price $ $ $.85
Using the table, if you purchased 50 items, you would pay $.85 each. Your total bill would be $42.50 ($.85 X 50)
Sometimes businesses offer cumulative quantity discounts, whereby a certain minimum purchase must be made during a specified period of time for the discount to be activated. A firm may offer a 2% cumulative quantity discount to any company that purchases $3000 worth of products in a six-month period. In the case that a firm’s purchases total $2500 during that period, no discount is permitted; if they total $4000, however, the discount is allowed. It would be calculated in the following manner:
Step 1: Determine the dollar discount.
P X D(%) = D($)
$4000 X .02 = $80
Step 2: Determine the net price.
P – D($) = NP
$ $80 = $3920
Slide 2 of 2

39. Calculating Discounts
SECTION 27.2
Calculating Discounts
Promotional Discounts
Promotional discounts are given to businesses that agree to advertise or promote a manufacturer's products. When the promotional discount is quoted as a percentage, it is calculated the same way as a cash discount. If a dollar discount is given, calculate the discount percentage this way:
Divide the dollar discount by the original price of the order:
D($) / P = D(%)
Promotional discounts are given to businesses that agree to advertise or in some other way promote a manufacturer’s products. When the promotional discount is quoted as a percentage, it is calculated the same way as a cumulative discount.
Sometimes marketers are granted a dollar amount as a promotional discount. In such cases, they may want to determine the net purchase price or the percentage of the promotional discount for themselves. Consider an example. The Cycle Shop buys Speedo bicycles for $10,000 and is granted a $250 promotional discount for displaying the bikes in its store window during the month of March. To determine the percentage discount, follow these steps:
Step 1: Divide the dollar discount by the original price. The answer will be a decimal.
D($)  P = D(%)
$250  $10,000 = .025
Step 2: Change the decimal to a percentage. This figure is the percentage discount.
.025 = 2.5%
Shift the decimal point in two places right.

40. Calculating Discounts
SECTION 27.2
Calculating Discounts
Seasonal Discounts
Sellers offer seasonal discounts to encourage buyers to purchase goods long before the actual consumer buying season. To calculate the net price with a seasonal discount offered as a percent:
Determine the dollar discount:
P x D(%) = D($)
Determine the net price:
P - D($) = NP
Sellers offer seasonal discounts to encourage buyers to purchase goods long before the actual consumer buying season. Purchasing Halloween costumes before July 27 or ski apparel before May 1 might qualify retailers for seasonal discounts.
Seasonal discounts are calculated in the same way as other discounts. Here is an example. Lobo Inc. offers an 8% seasonal discount to all buyers who purchase Christmas decorations before August 1. An order placed on July 20 for $1500 worth of decorations has a net purchase price that is calculated as follows:
Step 1: Determine the dollar discount.
P X D(%) = D(S)
$1500 x .08 = $120
Step 2: Determine the net price.
P – D($) = NP
$ $120 = $1380

41. Calculating Prices Practice 7 SECTION 27.1
Now try these problems involving quantity , promotional, and seasonal discounts
Suppose a firm is required to buy $10,000 worth of goods by September 15 in order to qualify for a 10% cumulative quantity discount. Would a firm that purchased $5000 worth of goods on September 1 get the discount? What about one that purchased $10,500 worth on September 20?
A manufacturer offers a retailer $750 as a promotional discount for advertising a certain product. What is the percentage discount if the total invoice was $37,500?
Regal Shoe Company offers retailers a 5% discount for placing orders by May 1. A retailer takes advantage of the offer and purchases $78,290 worth of shoes by the cutoff date. What is the net amount payable on the invoice?
No, because the minimum quantity is $10,000. No, because the deadline date was September 15.
2% ($750  $37,500 = .02)
$74, ($78,290 X .95)

42. Reviewing Key Terms and Concepts
ASSESSMENT
27.2
Reviewing Key Terms and Concepts
1. What procedures are used to calculate the dollar amount of a discount and the final selling price?
2. Carlo's Ice Cream Specialties gives all of its employees a 15 percent discount on ice cream cakes. What would an employee pay for a chocolate ice cream cake that is $13.75?

43. ASSESSMENT Thinking Critically
27.2
Thinking Critically
Assume you are given a trade discount of 30 percent and a seasonal discount of 10 percent. You also take advantage of a cash discount of 2 percent. Would you be entitled to a 42 percent discount? Explain.

44. Promotional Discounts
27.2
Graphic Organizer
Discounts from Manufacturers and Distributors
Discounts from
Manufacturers and Distributors
Cash Discounts
Trade Discounts
Quantity Discounts
Promotional Discounts
Seasonal Discounts