Discount
A discount is a reduction in price allowed by
the vendor. The vendor may be
manufacturer, wholesaler or another retailer.
Vendors anticipate such discounts and quote
prices accordingly.
Retail buyers should attempt to negotiate for
the best possible discounts
Discounts
There are diff types of discounts
Quantity Discount
Trade Discount
Cash Discount
Merchant’s Net Cost
Gross amount of the order
Less quantity discount(first discount)
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Result
Less trade discount(second discount)
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Result BILLED COST
Less cash discount(third discount)
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Net cost of order
Quantity Discounts
A % reduction in the cost of merchandise based
upon the size of the merchants order.
Also called Patronage discount because it
encourages the buyer to concentrate purchases or
continue to patronize the same vendor.
Amt of discount increases as quantity increases.
Goods are bought one time are called non
cumulative QD and accumulated purchases over a
period of time are called cumulative or patronage
discount.
Trade discount
Are a % deducted from a list price of the
manufacturer or supplier.
List price is manufacturers retail price.
A discount from the vendors list
price,expressed as a % or a Series of %’s off
the manufacturer’s quoted catalog price.
Trade Discount
A trade discount is frequently a functional
discount. When the amt of discount allowed
depends on the “function” of the
purchaser(industrial user ,wholesaler,
retailer,interior designer),the discount is known as
functional discount.industrial user and wholesalers
get larger or additional discounts than retailers
because they provide different services in the
channel of distribution and generally purchase in
much larger quantities. The services provided by
the middlemen such as wholesalers generally
reduce the costs of the manufacturer.A retailer
might receive a 30% discount.the wholesaler
might receive a discount of 30% and 10%, the
industrial user ‘s discount might be 30%,10%,and
5%.
Cash Discount
Are a % reduction from quoted cost for prompt
payment of the invoice.
TERMS refer to to the cash discount and dating.
DATING refers to the time limits for payments of
invoice.
“terms of 8/10” means an 8% cash discount can be
taken if the invoice is paid within 10 days from the
date of the invoice. Invoice date is usually the date
on which the merchandise is shipped.
Problem
1. A cash discount of 6%is allowed
on an invoice for $1654 dated sep 16.
If the cash discount is taken how
much will be remitted ?
Problem
2. A manufacturer offers the gift buyer a line
of carved wooden items that has trade
discounts of 30% and 20%. The buyer orders
merchandise that has a total list price of
$978. If a 2% cash discount is taken on this
order what will be the amt remitted?
Problem
3. A buyer for Sears is able to negotiate
discounts of 30%, 10%,5%. Kia specialty
store is able to negotiate only a 5%
discount.what is the price that each will pay
for an item listed at $500?
Problem
4. A buyer places an order totaling $5460 from
a vendor offering trade discount of 30%,
10%, with a 3% cash discount if paid 10 days
from the invoice date. If the buyer pays on
time,how much should be remitted?
Problem
5. a) From a buyer’s view point ,which is the
better series of discounts for the buyer: 25%,
15%,and 10% OR 30%, 15% and 5% ?
b) Which would be the better series of
discounts for the manufacturer?
Problem
6.The following order was placed and the
merchandise cost is list priceless 40% and 15%. Cal
the billed cost for the order
quantity(Doz) item list price
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1 1/4 cell phone cases 22.50each
2½ key chains 30.00each
1 1/6 purses 35.00each
¾ card cases 18.00each
Problem
7. The carpet buyer placed an order for 1260 square
yards of carpet at $11.90 per square yard. A 2%
cash discount is taken. How much will be remitted?
Quantity(yards) discount(%)
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500-1000 0.75
1001-1800 1.25
1801-2500 1.75
Over 2500 2.00
Problem
8. A stocking dealer in furniture store buys a line of
furniture for list price less 30%, 20%,and 5%. If
paid with in 15 days a 2% cash discount is
allowed.how much is remitted if cash discount is
taken?
Quantity item list price
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3 100 tables 395.00each
6 210 chairs 159.00each
12 203 chairs 129.00 each
