CH08 - PPT - Business Math

8.
1 Single Trade Discounts
Find the trade discount using a single

trade discount rate; find the net price using
the trade discount.
Find the net price using the complement of

the single trade discount rate.
Business Math, Eighth Edition

Cleaves/Hobbs
2009 Pearson Education, Inc. Upper Saddle River, NJ

07458 All Rights Reserved
Key Terms
Suggested retail price, catalog price, list

price: three common terms for the price 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

Cleaves/Hobbs

Key Terms
Net price: the price the manufacturer or

retailer pays or the list price minus the
trade discount.
Discount rate: a percent of the list price.

Cleaves/Hobbs

Product flow
Manufacturer Wholesaler Retailer Consumer

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Price flow
Consumer
List Price
$80
30%

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Retailer Wholesaler
Net Price Net Price
$56
50%
off list
$40
Manufacturer
Cost
$20
off list

How to find the trade discount
Using a single trade discount rate:

1.
2.
Identify the single discount rate and the

list price.
Multiply the list price by the single
discount rate.
Trade discount = rate x list price

Cleaves/Hobbs

Look at this example
Trade discount = rate x list price

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 will not pay $42
of the $120 list price.

Cleaves/Hobbs

Try these examples
Find the trade discount for a rug that lists

for $290 and has a trade discount of 30%.
$87
Find the trade discount for styling gel that

lists for $18 and has a trade discount of
15%.

Cleaves/Hobbs
$2.70

Find the net price
Using the trade discount:

1.
Identify the list price and the trade discount.
2.
Subtract the trade discount from the list
price.
Trade discount = Rate x List Price
Net Price = List Price Trade discount

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Find the net price of a desk that lists for

$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

Cleaves/Hobbs

Try these examples
Find the net price of a camera that lists for

$132
Find the net price of a patio table that lists

for $460 and has a trade discount of 20%.

Cleaves/Hobbs
$368

Find the net price
Using the complement of the single trade

discount rate.
Complement of percent: the difference

between 100% and the given percent.
Examples:
The complement of 30% is 70%.
The complement of 55% is 45%
The complement of 5% is 95%.
Cleaves/Hobbs

How to find the net price

1.
Find the complement: subtract the single trade

discount from 100%.
2.
Multiply the list price by the complement of the

single trade discount.
Example:
Find the net price of a coffee maker that lists
for $20 and has a trade discount rate of 20%.
80% is the complement of 20%
NP = $20 x 0.80 = $16
Cleaves/Hobbs

Try these examples
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


Cleaves/Hobbs
$71.40

8.2 Trade Discount Series
Find the net price, applying a trade

discount and using the net decimal
equivalent.
Find the trade discount, applying a

trade discount series and using the
single discount equivalent.

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Trade discount series
Trade discount series or chain 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

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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
An additional discount of 10% is taken 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

Cleaves/Hobbs

Can you add the discounts

together and apply it as one?
If the item has three discounts of 20%, 10%

and 5%, can you add them together and
apply a 35% discount?
No, because each time you apply the

additional discount, the base becomes
smaller. Directly applying a 35% discount
would result in a final price of $260.
$260 $273.60

Cleaves/Hobbs

The net decimal equivalent
To find the net decimal equivalent of a

trade discount series:
1.
Find the net decimal equivalent: multiply

the decimal form of the complement of
each trade discount rate in a series.
2.
Multiply the list price by the net decimal

equivalent.

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Find the net price of an order with a list price of

$800 and a trade discount series of 20/10/5.
Find the complement of each of 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

Cleaves/Hobbs

Try these examples
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.

Cleaves/Hobbs
$88.45

8.2.2 Find the Trade Discount

To find the trade discount by applying a trade
discount series and using the single discount
equivalent:
1.
Find the single discount equivalent by

subtracting the net decimal equivalent from 1.
2.
Multiply the list price by the single discount

equivalent.
TD = single discount equivalent x list price

Cleaves/Hobbs

Key Terms
Single discount equivalent: the

complement of the net decimal equivalent.
It is the decimal equivalent of a single
discount rate 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

Cleaves/Hobbs

Use the single discount equivalent to

calculate the trade discount on a $3,200
lawn tractor with a discount series of
30/20/10.
Find the net decimal equivalent by

multiplying the complements of each
discount rate. 0.70 x 0.80 x 0.90 = 0.504
To find the single discount equivalent,

subtract the net decimal equivalent from 1.

Cleaves/Hobbs

Look at this example (continued)
Subtract the net decimal equivalent (0.504) from

1 to find the single discount equivalent.
The result is 0.496 (or 49.6%).
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.

Cleaves/Hobbs

8.3 Cash Discount and

Sales Terms
Find the cash discount and the net amount

using ordinary dating terms
Interpret and apply EOM terms
Interpret and apply ROG terms
Find the amount credited and the

outstanding balance from partial payments
Interpret freight terms

Cleaves/Hobbs

8.3.1 Find the Cash Discount

and the Net Amount
Bills are often due within thirty days from the

date of the invoice.
To encourage prompt payment, companies offer

an incentive of a cash discount if the invoice is
paid within a specified period.
2/10 n/30 means take a 2% cash discount if

paid within 10 days; pay the net price if covered
within 30 days.
Cleaves/Hobbs

Find the cash discount for an invoice dated

December 1 for $1,500 with terms of 2/10
n/30.
If the invoice is paid on December 9th, for

example, the payment would include the
discount 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.

Cleaves/Hobbs

Try these examples

Annies Plants has received an invoice for
$450.00 for potting soil dated November 3 with
terms of 5/10 n/30. If the invoice is paid on
November 12, how much would Annies 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.

Cleaves/Hobbs

Thirty days has September
To calculate the exact number of days for a cash

discount, you must know how many days are in
each month, so if you are not surelearn them.
There are two tips in the text to help you; using a

chart is usually the most reliable.

Cleaves/Hobbs

Use the complement to find the

net amount of an invoice
An invoice of $500 which reads 2/10 n/30

tells you that a discount of 2% is available if
the payment is made within 10 days.
To calculate the net amount directly, use the

complement 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

Cleaves/Hobbs

Try this example
Sycamore Enterprises received a $1,248 bill for

computer supplies dated September 2 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.
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

Cleaves/Hobbs

8.3.2 Interpret and Apply

EOM (end-of-month) Terms
Another type of sales term are EOM terms.
For example, an invoice might be 2/10 EOM,

meaning that a 2% discount is allowed if the
bill is paid during the first month or up until 10
days of the month after the 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.

Cleaves/Hobbs

Look at these examples
An invoice dated March 4 with terms of 3/15

EOM would mean that a 3% discount would be
applicable until April 15.
An invoice dated August 25 with terms of 5/10

applicable until September 10.
An invoice dated December 2 with terms of 2/20

applicable until January 20.
Cleaves/Hobbs

An EOM exception!
An exception occurs when the invoice is

dated on or after the 26th of the month.
The discount would be applicable until the

specified day of the month following the
month of the invoice.
Example: An invoice dated April 27 with

terms of 3/10 EOM would be eligible for the
discount if the bill is paid on or before June
10.

Cleaves/Hobbs

8.3.3 Apply Receipt of Goods

(ROG) 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.
Multiply the invoice amount times the

complement of the discount rate.
Sales terms stating 1/10 ROG mean that a 1%

discount is applicable 10 days after the goods
are received; not when the invoice is dated.

Cleaves/Hobbs

Try this example
Judys 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

Cleaves/Hobbs

8.3.4 Find the Amount Credited

and the Outstanding Balance
Partial payment: a payment that does not

equal the full amount of the invoice less any
cash discount.
Partial discount: a cash discount applied only

to the amount of the partial payment.
Amount credited: the sum of the partial

payment and the partial discount.
Outstanding balance: the invoice amount

minus the amount credited.
Cleaves/Hobbs

Applying the percentage formula
In applying the percentage formula to find the

amount credited, the rate is the complement
of the discount rate; the percentage is the
partial payment; and the amount credited is
the base.
B = P/R
Sometimes a customer cannot pay the entire

amount of an invoice, but takes advantage of a
discount period to apply that discount to a part
of the total due.
Cleaves/Hobbs

If the Semmes Corporation received a $875 invoice with

terms of 3/10 n/30 and could not pay the full amount
within 10 days, but chose to send in a $500 partial
payment on Day 5, what amount was credited to their
account?
B (amount credited) = P (partial payment) divided by R

(complement of the discount rate)
B = 500/0.97= $515.46 = amount credited
The balance would be the difference.
$875 - $515.46 = $359.54 = balance

Cleaves/Hobbs

8.3.5 Interpret Freight Terms
Bill of lading: shipping document that includes

a description of the merchandise, the number of
pieces, weight, name of the consignee (sender),
destination, and method of payment of freight
charges.
FOB shipping point: free on board buyer

pays for shipping when shipment is received.
Freight collect: The buyer pays the shipping

when the shipping is received.
Cleaves/Hobbs

More key terms
FOB destination: free on board at the

destination point. The seller pays the shipping
when the merchandise is shipped.
Freight paid: The seller pays the shipping

when the merchandise is shipped.
Prepay and add: The seller pays the shipping

when the merchandise is shipped; but, the
shipping costs are added to the invoice for the
buyer to pay.
Cleaves/Hobbs

Remember that cash discounts

do not apply to shipping costs
Example: The Home Doctor received a shipment of

hand tools with an invoice total of $800 (including
shipping) and sales terms of 3/10 n/30. The invoice is
dated June 2 and the shipping costs are $125. Calculate
the payment of the invoice if it is paid on June 10.
Subtract the shipping charges: $800 125 = $675
Apply the discount: $675 x 0.97 = $654.75
Add the shipping charges back in:

$654.75 + 125 = $779.75= amount to be paid
Cleaves/Hobbs


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8.

1 Single Trade Discounts

Find the trade discount using a single

Find the net price using the complement of

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Suggested retail price, catalog price, list

Trade discount: the amount of discount that

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Net price: the price the manufacturer or

Discount rate: a percent of the list price.

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

How to find the trade discount

Using a single trade discount rate:

Identify the single discount rate and the

Trade discount = rate x list price

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Look at this example

Trade discount = rate x list price

Trade discount = 0.35 x $120

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Try these examples

Find the trade discount for a rug that lists

Find the trade discount for styling gel that

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Find the net price

Using the trade discount:

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Look at this example

Find the net price of a desk that lists for

Trade discount = 0.30 x $320 = $96

Net price = List price Trade discount

Net price = $320 - $96 = $224

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Try these examples

Find the net price of a camera that lists for

Find the net price of a patio table that lists

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ

Find the net price

Using the complement of the single trade

Complement of percent: the difference

2009 Pearson Education, Inc. Upper Saddle River, NJ

How to find the net price

Find the complement: subtract the single trade

Multiply the list price by the complement of the

2009 Pearson Education, Inc. Upper Saddle River, NJ

Try these examples

Find the net price of a set of golf clubs that

Find the net price of a bicycle that lists for

Business Math, Eighth Edition

2009 Pearson Education, Inc. Upper Saddle River, NJ