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Seminar 4/MAT112/bushra_fskm_uitm 1

Chapter 7: Trade and Cash Discount

• Trade discount is a deduction from the list price and it is usually given to buyers for the
following reasons:

- to clear old/spoilt items

- to compete with other sellers

- to encourage bulk purchases

• Retailers cannot take trade discounts on freight, returned goods, sales tax and so on.

• Trade discounts just only given to buy for large quantities for item.

• Net price is the price that the retailer pays after reduction in prices.

-Formulation:

i) Trade discount amount(TD) = List price x Trade discount rate

= LP x r

ii) Net Price (NP) = LP – (LP x r)

• Trade discount may be single discount or chain of discounts

-Formulation:

i) Single trade discount:-

NP = LP(1 – r)

ii) Chain discount:-

NP = LP(1 – r1) (1 – r2) (1 – r3)

• Single discount equivalent is a single discount which is equivalent to a chain of


successive discounts.

-Formulation:
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r = 1 – [(1 – r1) (1 – r2) (1 – r3)]

• Cash discounts are credits or discounts applied to an invoice or bill, which are paid
within a specified period of time

• Cash discount is not given on transportation, returned goods, sales tax and so on.

• Cash discount offered to customers to encourage early payment of bills.

-Example:

3/10,1/15,n/30 means:-

i) the customer is entitled to received a 3% discount if the bill is paid within 10 days from

the date of invoice

ii) if 3% discount is missed, a 1% discount can be taken from day 11 to day 15 of invoice

date

iii) the full amount of price with no discount from day 16 to day 30

iv) credit days is 30 days.

• Partial payment on an invoice – retailer pays only part of the invoice within the discount
period

-Formulation:

i) Amount paid = credit given(1 – r)

ii) Amount outstanding = invoice amount – credit given

Trade and Cash Discount

Example 1 (trade discount)


What is the net price for a RM750 dinnerware set offered at a 20% discount?

Example 2 (trade discount)


The net price of a camera with 40% trade discount is RM480. What is the list price?

Example 3 (chain discount)


A television set is advertised for RM1,000 less 25%, 15% and 10%. Find
a) the net price, b) the total discount, c) the single discount equivalent
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Example 4 (cash discount)


3/10,1/15,n/30 means the customer is entitled to received a 3% discount if the bill is paid within
10 days from the date of invoice; if 3% discount is missed, a 1% discount can be taken from day
11 to day 15 of invoice date; the full amount of price with no discount from day 16 to day 30;
credit days is 30 days.

Example 5 (cash discount)


ABC Sdn Bhd received an invoice for RM4000 (including transportation cost of RM150) dated
29 April. If the invoice had terms of 8/12, 4/20, n/30, find the net invoice price if the invoice was
paid on 12 May.

Example 6 (trade and cash discount)


An invoice of RM10,000 and dated 18 April 2009 is offered 25% trade discount and cash
discount terms of 9/10, n/30. Find
a) the trade discount offered, b) the cash discount offered,
c) the net payment if the invoice is paid on 28 April 2009.

Example 7 (partial payment of invoice)


An invoice of RM900 dated 23rd April had the following terms of cash discount 7/15, n/30. Find
the amount outstanding if the buyer pays RM400 on 8th May.

Chapter 8: Mark-up and Markdown

• Basic terms:

Cost price (C) : the price paid to the manufacturer / supplier.

Retail price (R) / Selling price (SP) : the price at which item is sold.

Mark-up (M) / Gross profit : the difference between the retail price and the cost/ provide
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a profit which is there is an additional amount added to the

original price of the item.

: Formulation :-

R=C+M

Markdown (MD) : the difference between the old retail price and the new retail price/ the

decrease in the retail price of the item.

: Formulation :-

MD = Rold − Rnew where Rold = old retail price

Rnew = new retail price

Operating expenses (OE) : Any expenses of business operation such as wages, rent,

insurance, utilities, advertising and others.

Breakeven price (BEP) : the retail price in which there is no gain and loss.

: Formulation :-

BEP = C + OE

Net profit (NP) : the amount left after deducting operating expenses from the mark-

up/gross profit.

markup
• i) Mark-up percent based on cost price, % M C = × 100%
cost

markup
ii) Mark-up percent based on retail price, % M R = × 100%
retail

markdown
• Markdown percent, %MD = ×100 %
old retail price
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• Profit and loss – possibilities : i) If gross profit > operating expenses, then net profit

exists, NP = +ve

ii) If gross profit < operating expenses, then net loss

exists, NP = -ve

iii) If gross profit = operating expenses, then breakeven

exists , NP = 0

-when NP = +ve or –ve ,

R = C + NP + OE

-when NP = 0 ,

R = C + OE

Mark-up and Mark-down

Example 1
The cost of a bag is RM15. What is the retail price if the mark-up is 15% of the cost price?

Example 2
A fruit seller buys 100kg of duku langsat for RM100. He finds that 20% of the duku langsat are
spoilt and throws them away. If he wants to have a 40% mark-up on the total cost, find the retail
price per kg of the duku langsat.

Example 3
A shirt that was previously sold for RM79.95 is now being sold for RM59. Find the markdown
percent.

Example 4
Given below is the quantity and regular price of a DVD player, which was sold at an electrical
store.
Items Regular retail price per unit
15 sets RM599
If the store made a net profit of 20% based on cost and the total operating expenses incurred
were 5% of the cost for each DVD player, calculate:
a) the cost of each DVD player,
b) the breakeven price for each DVD player.

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