Kinh tế học - Chapter 7: Discounts: Trade and cash

Chapter 7Discounts: Trade and CashCalculate single trade discounts with formulas and complementsExplain the freight terms FOB shipping point and FOB destinationFind list price when net price and trade discount rate are knownCalculate chain discounts with the net price equivalent rate and single equivalent discount rateDiscounts: Trade and Cash#7Learning Unit ObjectivesTrade Discounts—Single and Chain (Includes Discussion of Freight)LU7.1List and explain typical discount periods and credit periods that a business may offerCalculate outstanding balance for partial paymentsDiscounts: Trade and Cash#7Learning Unit ObjectivesCash Discounts, Credit Terms, and Partial PaymentsLU7.2Irwin/ McGraw-Hill Publishing C. Invoice No. 5582 1333 Burr Ridge Parkway Burr Ridge, Illinois 60527 Date: July 8, 2010 Ship: Two-day UPS Terms: 2/10, n/30 Sold to: North Shore Community College Bookstore 1 Ferncroft Road Danvers, MA 01923 Description Unit list price Total Amount 50 Financial Management – Block/Hirt $ 95.66 $ 4,783.00 10 Introduction to Business- Nichols $ 89.50 895.00 Total List Price $ 5,678.00 Less: Trade Discount 25% 1,419.50 Net Price $ 4,258.50 Plus: Prepaid Shipping Charge 125.00 Total Invoice Amount $ 4,383.50 InvoiceTrade Discount Amount & Net Price FormulasTrade discount amount = List price x Trade discount rateNet Price = List price - Trade discount amount$5,678 - 1,419.50 = $4,258.50 $5,678 x 25% = $1,419.50Freight TermsFOB Shipping Point - buyer pays the freight costFOB New Jersey - The buyer in San Diego pays the freightFOB Destination - seller pays the freight costFOB San Diego - The seller in New Jersey pays the freightbuyersellerComplementComplement - The difference between the single discount rate and 100%If the trade discount is 25%, the complement is 75% (100%-25%)75%TradeDiscountComplement25%Single Trade DiscountThe price of a Macintosh Computer is $2,700. The manufacturer offers a 40% trade discount. What are the trade discount amount (TDA) and the net price?TDA = $2,700 x .40 = $1,080Net Price = $2,700 - $1,080 = $1,620Using Complement$2,700 x .60 = $1,620Calculating List Price When Net Price and Trade Discount Rate Are Known List Price = Net Price . Complement of trade discount rateMacintosh Computer has a $1,620 net price and a 40% trade discount. What is the list price?100% - 40% = 60%$1,620 .60LP = $2,700Chain DiscountsTwo or more discounts:20/15/10To calculate discount20 + 15 + 10 = 45%Find the net price equivalent rate (multiply the complements) 100% 100% 100% -20 -15 - 10 .80 x .85 x .90 = .612Calculating Net Price with a Chain DiscountThe price of a office equipment is $15,000. With a chain discount of 20/15/10, what is the net price?$15,000$15,000$12,000$10,200 x .20 -3,000 - 1,800 - 1,020$3,000$12,000$10,200 $9,180 x .15 x .10 $1,800 $1,020Calculating Net Price Using Net Price Equivalent RateThe price of a office equipment is $15,000. With a chain discount of 20/15/10, what is the net price?Find the net price equivalent rate (multiply the complements).80 x .85 x .90 = .612$15,000 x .612 = $9,180Trade Discount Amount $15,000 - $9,180 = $5,820Calculating Trade Discount Amount Using Single Equivalent Discount RateThe price of a office equipment is $15,000. With a chain discount of 20/15/10, what is the net price?Find the net price equivalent rate (multiply the complements).80 x .85 x .90 = .6121.00 - .612 = .388Trade Discount Amount $15,000 x .388 = $5,820Cash Discounts Credit PeriodTime period sellers gives buyers to pay invoicesMar. 1Mar. 31Time period buyer has to take advantage of cash discountMar. 1Mar. 10Discount PeriodDiscount for prompt payment. Not taken on freight, returned goods, sales tax, & trade discounts.InvoiceNew Hampshire Propane CompanyDate Description Qty. Price Total Previous Balance $0.006/24/10 PROPANE 3.6 $3.40 $12.24 Total this invoice: $12.24 AMOUNT DUE: $12.24 Prompt Pay Discount: $0.19 Net Amount Due if RECEIVED by 7/10/10: $12.05 Due Date 7/26/10Invoice No.004433LInvoice Date6/26/10Ordinary Dating Method2/10, n/30 - “two ten, net thirty”July 5July 15Aug.4Discount Period10 DaysNo DiscountDay 11 - 30 Credit Period (30 days)$400 invoice dated July 5; terms 2/10, n/30; paid on July 11. $400 x.02 = $8$400 - $8 = $392or$400 x .98 = $392Receipt of Goods (ROG)3/10, n/30 ROG - Cash discount period beginswhen the buyer receives the goodsMay 9July 8Aug. 7 Credit Period (30 days)$900 invoice dated May 9, received goods July 8; terms 3/10, n/30 ROG; paid on July 20. Paid 900Missed discountperiodInvoice DateJuly 18No DiscountDay 11 - 30 Discount Period10 DaysEnd of Month (EOM)1/10 EOM - 1% discount, up until the 10th of the following month July6Aug. 1Aug. 30Credit Period$600 x .01 = $6$600 - $6 = $594or$600 x .99 = $594Invoice DateAug. 10$600 invoice dated July 6; terms 1/10 EOM; paid on August 10.No Discount11th - 30th Discount Periodends on 10thEnd of Month (EOM)2/10 EOM - Consider the “25th rule” - Skip a monthApril 29June 1June 30Credit PeriodPaid $800Missed discount periodInvoice DateJune 10$800 invoice dated April 29; terms 2/10 EOM; paid on June 18.Discount Periodends on 10thNo Discount10th - 30th Partial PaymentMolly McGrady owes $400. Molly’s terms were 2/10, n/30. Within 10 days Molly sent in a payment of $80. How much is her new balance?100% - 2% = .98$400 - $81.63 = $318.37$80.98 = $81.631. Find the complement of discount rate2. Divide partial payment by the complement (amount credited)3. Subtract step 2 from the amount owed (outstanding balance)(1-.02)