Discount

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) --------------------------------------------- Result  Less trade discount(second discount) --------------------------------------------- Result BILLED COST  Less cash discount(third discount) -----------------------------------------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 ================================ 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(%) ----------------------------------------------------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 ----------------------------------------------------------3 100 tables 395.00each 6 210 chairs 159.00each 12 203 chairs 129.00 each