In addition to the trade discounts, cash discounts may be offered by manufacturers and wholesalers to encourage early payments; while retail discounts may be offered by retail merchants to customers to obtain a quick turnover of capital and a greater sales volume.
Problems in discounts are percentage problems, the elements of which are:
- the percentage, which is the amount of discount;
- the rate, which is the per cent or rate of discount and
- the base, which is the amount on which the discount is computed
In trade discounts, retailers are given by manufacturers or wholesalers catalogs or price lists of goods, containing prices that theretailers should charge their customers. The wholesalers and manufacturers, however, grant the retailers a deduction large enough to enable the latter to make a satisfactory net profit.
This deduction or trade discount is contained in a confidential trade discount sheet showing the per cent or per dollar deduction allowed on the different items in the catalog. The price of an article after the trade discount has been deducted from the list is called the invoice price, net price or net cost.
Below are samples of problems from which we can determine the total amount of trade discount, the rate of trade discount and the list price of the merchandise.
- Pandora Shirt Factory lists T-shirts at $8.50 per dozen. If a retailer purchases 10 dozen at a discount of 20%, how much trade discount is he entitled to?
- A table set listed at $1,950 was offered to a retailer with a discount of $292.50. What was the rate of trade discount?
- By taking a trade discount of 20% on a bill of goods,
For problem 1, the given are: List price = $8.50 x 10 and Rate of discount = 20%
- Trade discount = List Price x Rate
- $85 x .20
For problem 2, the given are: List price = $1,950 and Trade discount = $292.5
- Rate of discount = Trade Discount /List price
- .15 = 15%
For problem 3, the given are: Rate of discount = 20% and Trade discount = $280
- List price = Trade discount/Rate
Below are also samples of problems without solutions. I decided to leave them for the readers as a warm-up practice.
- The Love Garment Shop lists the price of a sheath dress at $34.80 in their catalog. If a retailer is allowed a trade discount of 25%, how much should he pay for the dress?
- A pair of shoes listed at $78 is sold to a retailer for $72.54. What is the per cent of discount?
- After deducting 5% trade discount, the invoice price of a bill of goods is $1,900. What is the list price?
Source of idea: my old notes when I took up Business Mathematics