Anticipation Loading

Anticipation Is an extra discount, given when an invoice is paid prior to the end of the cash discount period. Generally 6% is used as annual rate = ½% per month. Is an extra discount,given when an invoice is paid prior to the end of the cash discount period. Generally 6% is used as annual rate = ½% per month.

Anticipation An invoice for $100 is dated Dec 4 and

carries terms of 2/10-30X. Anticipation is permitted. If the bill is paid Dec14 Using the cash discount period method

Anticipation The cash discount period is 40 days. Since the bill is paid in 10 days, the anticipation period is 30 days. Anticipation = ½% for 30 days Cash discount =2% Cash discount + anticipation combined = 2% +1/2% = .02 + .005 = .025 Total discount = $100 x $2.50 = $2.50 Net cost = $100 - $2.50 = $97.50 Amount remitted =$97.50

Problem 1 1. An invoice for $960 dated july 15 has terms of 2/10-30X, anticipation permitted. How much should be remitted if paid on Aug 4th.

Solution 2 Cash discount period = 40 days Since the bill is paid in 20 days, the anticipation period is 20 days. Anticipation = ½% (0.5%) for 30 days therefore for 20 days ? = 0.33% Cash discount =2% Cash discount + anticipation combined = 2% +0.33% = 2.33% Total discount = $960 x 2.33% = $22.37 Net cost = $960 - $22.37 = $937.63 Amount remitted =$937.63

Problem 2 2. The dress buyer purchases with terms of 8/10 EOM, anticipation permitted. An invoice for $860 dated Sep 28 is paid on Oct 12. How much should be remitted?

Solution 2 1. Nov 10 –last date of cash discount

Paid on 12 Oct ,29 days remaining. 0.48% anticipation total discount = 8% + 0.48% amt remitted = $787.07

Loading Is the practice by top management of intentionally increasing the amount of the invoice to a price to allow a theoretical greater % of cash discount but results in paying the net amount that the vendor quotes. The vendor will agree to a higher % of cash discount if the merchant will consent to a higher billed cost price.

Loading Because cash discounts provide a ‘profit cushion’ a retailer may decide to increase cash discount by loading the invoice. Loading refers to an increase in the billed cost that is offset by an increased cash discount.

Loading The retailer’s invoice cost is increased to permit a larger cash discount than what is typically available at the vendor’s going rate, but results in paying the same amount that the vendor quotes. Thus the net cost of the merchandise is not changed. Loading is frequently practiced in purchase of imported merchandise.

Loading Loading may be done by the vendor, or it may be a practice used by the store’s accounting office to carry all inventory at the same rate of discount or to provide a profit cushion. Some retailers desire to have all inventory charged to the departments at the same cash discount rate. When the cash discount % actually obtained is less than the % set by the store, the stores accounting office will “load “ the cost.

loading The essential objective of loading is to establish a standardized cash discount %,which in turn permits the merchant to:2. Establish a larger reserve of cash discounts. 3. Seek a higher % of cash discount in the market place. 4. Analyze net cost prices quoted by several vendors on similar merchandise offerings.

Loading  Loaded cost =

net cost ---------------------100% - Loaded discount%

Loading A hand bag with quoted cost of $36.00 is sold with a 3% cash discount. What is the loaded cost when sold with 8% discount? Net cost = $36 less 3% = $34.92 Loaded Cost = Net Cost / Complement of the cash discount = $34.92 / (100% -8%) = $34.92 / 92% = $37.96 check the answer: $37.96-8% =$34.92

Problem 1 A manufacturer quotes the cost of an item at $10, with terms of 3/10 n/30. The buyer desires an 8% cash discount. What is the “loaded cost”?

Solution 1  Net cost of invoice = $10 Billed cost – 3%

cash discount

= $10.00 –(0.03x$10) = $10.00 -0.30 Net cost = $9.70 Loaded cost

loaded cost

= $9.70 Net cost --------------------------100% - 8% loaded cost =$9.70 --------92% = $ 10.54

Problem 2 The glove buyer wants to buy with an 8% cash discount. Most of the glove vendors quote 6% cash discounts. What will be the total cost of the following order when loaded for an 8% discount? Quantity style cost =============================== 5 ½ dozen 1066 $66/dozen 8 3/4dozen 1290 $90/dozen 2 1/3 dozen 1410 $10.50/each

Solution 2 66pcs 105pcs 28pcs

363 787.5 294 ====== 1444.5 86.68 ====== 1357.82 / 92% = $1475.90