Trade and cash discounts. Mathematics of buying. List price. Trade discounts. Net price

1.

CHAPTER 8 – Trade and Cash Discounts
Mathematics of Buying
List Price
Trade Discounts
Net Price

2.

8-2
Learning Outcomes
Find the Net Price applying
a trade discount series and
using the net decimal
equivalent.
Find the Trade Discount
applying a trade discount
series and using the single
discount equivalent.
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

3.

Key Terms…
Section 8-2
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 attract new client
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

4. Trade discount series step by step

Find the net price applying a trade discount
series and using the net decimal equivalent
8-2-1
Section 8-2
Trade Discount Series
One way to calculate the net price is to make a
series of calculations.
Trade discount series step by step
Complements are used to find net prices directly.
– A faster method.
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

5. Trade discount series step by step

HOW TO:
Find the net price applying a trade discount
series and using the net decimal equivalent
Section 8-2
Trade Discount Series
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 step
Trade discount
series
step by
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.
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

6.

Can you add the discounts
together and apply it as one?
Section 8-2
Trade Discount Series
If the item has three discounts of
(20% / 10% / 5%), can you add them
together and apply a 35% discount?
No!
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
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

7.

HOW TO:
Find the net decimal equivalent
Section 8-2
Trade Discount Series
Using the complement method to find the Net Price
Multiply the decimal form of the complement
of each trade discount rate in a series.
Multiply the list price by the net decimal
equivalent.
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

8.

An Example…
Section 8-2
Trade Discount Series
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.
0.80*0.90*0.95= 0.684
The net decimal equivalent is 0.684.
Apply the net decimal equivalent to the list price.
NP = 0.684 x $800 = $547.20
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

9.

Examples…
Section 8-2
Trade Discount Series
A refrigirator lists for $325 and has a trade
discount series of 20/10/10. Find the net price.
– $210.60
A dress lists for $125 and has a trade discount
series of 15/10/7.5. Find the net price.
– $88.45
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

10.

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 the
single discount equivalent.
TD = single discount equivalent x list price
Use the single discount equivalent to calculate
the trade discount on a $3,200 lawn tractor
with a discount series of 30/20/10.
MORE
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

11.

An Example…
Section 8-2
Trade Discount Series
The
discount
equivalent
0.496;
Find
thesingle
net decimal
equivalent
by is
multiplying
apply it to theofprice
$3,200. rate.
the complements
eachof
discount
TD 0.70
= $3,200
x 0.496
x 0.80
x 0.90==$1,587.20
0.504
Use
the
single
equivalent
calculate
The
trade
discount
on the
tractor
isto
$1,587.20.
Subtract
thediscount
net decimal
equivalent
(0.504)
the That
trade
onthat
a $3,200
lawn
tractor
the
you do
not
pay.
from
“1” is
todiscount
findamount
the single
discount
equivalent.
withThe
a discount
series
30/20/10.
MORE
result is 0.496
(orof49.6%).
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved

12.

Key Terms…
Section 8-2
Trade Discount Series
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.
Business Math, Ninth Edition
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel
© 2012 Pearson Education, Inc.
Upper Saddle River, NJ 07458 All Rights Reserved