CHAPTER 2

Buying Merchandise

TERMS TO BE FAMILIARIZED WITH:

Wholesalers Trade Discount Rate (TDR)

Retailers Single Equivalent Net Price (NP) Trade Discount Rate (SETDR) Invoice Trade Discount (TD) Cash Discounts List Price (LP) Receipt of Goods (ROG)
Cash on Delivery (COD)

 WHOLESALERS - sell their merchandise in bulk or large quantities in boxes, big packages and by large number of pieces. NET PRICE (NP) - the price of the merchandise that appears in the invoice. BILL

 TRADE DISCOUNT (TD) - is usually a percentage reduction in price of a merchandise granted by a manufacturer or a wholesaler to the retailer.
LIST PRICE (LP) - the manufacturers recommended price. Suggested Retail Price (SRP)

Reasons of offering a Trade Discounts:

1. Adjust list prices to prevailing market prices. 2. Secure the trade of desirable customers. 3. Attract retailers to buy large quantities.

FORMULAS:

TD = LP x TDR
NP = LP - TD NP = LP(1 TDR)

TD x100% TDR = LP

Example 1 If a businessman buys a box of canned goods listed at P680.00 with a trade discount of 25%, how much will be the net price? TD = LP x TDR NP = LP (1 - TDR) = P680.00 x 0.25 = 680 (1 0.25) TD = P170.00 NP = P510.00 NP = LP - TD NP = P680.00 - P170.00 = P510.00

Try this! XYZ Suppliers gives a trade discount of 18% on a certain appliance item for a minimum purchase of 1 dozen at a list price of P2,500 per piece. If a retailer buys a dozen of the appliance, how much will he pay per piece? for a dozen?

SUCCESSIVE TRADE DISCOUNTS

- is a method of granting two or more trade discounts to the retailers.

NP (for k successive discount rates)

= LP ( 1 TDR1 )( 1 TDR2 ) , .....(1 TDRk )

Example 1
If a DVD player has a list price of P3,400.00 and trade discounts of 20% and 10%, how much is the a) net price, and b) trade discount? a) NP = LP (1 TDR1)( 1 TDR2) = P3,400.00 (1 0.20)( 1 0.10) = P 3,400.00 (0.80)( 0.90) = P2,448.00

b)
TD = LP - NP

= P3,400.00 P2,448.00
= P952.00 Hence, the net price is P2,448.00 and the trade discount is P952.00.

Example 2
Mrs. Navarro bought a flat television set with a listed price of P14,600.00 subject to 15%, 10% and 5% trade discounts. How much did she pay?

Solution: NP = LP (1 TDR1)( 1 TDR2)( 1 TDR3) = P14,600.00 (1 0.15)(1 0.10)(1 0.05)

NP = P10,610.55

SINGLE EQUIVALENT TRADE DISCOUNT RATE (SETDR) SETDR = [ 1 (1 TDR1)(1 TDR2),...(1 TDR3)] x 100%

Example 1
A certain item is subject to 20% and 10% trade discounts . Find the single equivalent trade discount rate (SETDR).

Given: TDR1 = 20%

Solution:

TDR 2= 10%

SETDR = [ 1 (1 0.20)(1 0.10)] x 100%

= [1 (0.80)(0.90) x 100% SETDR = 28%

Example 2
A calculator has a list price of P845.00 subject to 20%, 10% and 5% trade discounts. Find the: a. SETDR b. net price c. trade discount

CASH DISCOUNTS
Cash Discount

- it is an amount or a percentage of the net price that is deducted from the net price if the bill is paid on or before a specified time period called the DISCOUNT PERIOD. Based on regular dating, the discount period begins with the receipt of goods (r.o.g.) by the buyers.

Some examples of Payment Terms:

1. 2/10, n/30

A 2% cash discount is deducted from the total amount of the merchandise if payment is made during the 10-day discount period. The n/30 indicates that the total amount must be paid within 30 days.

2. 5/10, 2/10, n/30

This means that 5% may be deducted from the bill if paid within 10 days of the discount period; 2% if paid from the 11th to the 20th day; or if not, full payment of the goods is due from the 21st to the 30th day of the date of the invoice.

3. 3/7, e.o.m
The buyer will receive a 3% cash discount if the bill is paid within 7 days of the next month.

4. 3/7, e.o.m., n/30 This means that the buyer will receive a 3% discount if the bill is paid within 7 days of the next month; or if not, the bill would have to be paid in full from the 8th to the 30th day of the next month.

5. r.o.g
This means that the discount period begins upon the receipt of the goods by the buyer.

6. c.o.d
Cash on delivery. Payment would have to made upon the delivery of the goods.

Examples: State the payment due of the following invoices:

INVOICE DATE A. January 5 B. August 1 C. March 2 PAYMENT TERM 10 E.O.M. 30 DAYS 5/10, N/30

D. October 27
E. April 12 F. March 10

15 E.O.M.
C.O.D. 8/10, E.O.M., N/60

G. January 5
H. MaY 7

10 + 30X
10 R.O.G.