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Chapter 7 Mathematics of Buying Section 1 Invoices and Trade Discounts Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 1

Complete an Invoice from J. B. Sherr on the next slide Sales invoice for J. B. Sherr but a purchase invoice for Bed Bath & Beyond Shows: quantity ordered, number shipped, unit price, and extension total (column labeled Amount -number of an item shipped multiplied by unit price) Invoice total is sum of the extension totals Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 2

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 3

Complete an Invoice Trade and cash discounts are never applied to shipping and insurance charges For this reason, shipping and insurance charges are often not included in the invoice total Purchaser must add them to the invoice total to find the total amount due. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 4

Calculate Trade Discounts and Understand Why They are Given Trade discounts given to businesses or individuals who buy an item for resale or produce an item that will then be sold Seller usually gives the price of an item as its list price (the suggested retail price) Seller gives a trade discount that is subtracted from the list price Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 5

Calculate Trade Discounts and Understand Why They are Given The result is the net cost or net price, which is the amount paid by the buyer Find the net cost with the following formula. Net cost = List price – Trade Discount Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 6

Example The list price of a Texas Instruments calculator is $96. 50, and the trade discount is 15%. Find the net cost. First find the trade discount; then subtract the discount from the list price of $96. 50. Trade discount = 15% of $96. 50 = $24. 13 Net cost = $96. 50 – $24. 13 = $72. 37 The net cost of the calculator is $72. 37. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 7

Differentiate Between Single and Series Discounts • In the previous example, a single discount of 25% was offered. • Sometimes two or more discounts are combined into a series, or chain, discount. • A series discount simply refers to more than one discount in a series. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 8

Differentiate Between Single and Series Discounts • For example, the series discount 20/10 means to first apply a 20% discount. • Start with the amount after the first discount and then apply another discount of 10%. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 9

Trade Discounts Trade discounts change often due to all the following. 1. Price changes 2. Size of orders placed with suppliers 3. Geographic location 4. Seasonal fluctuations 5. Level of competition Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 10

Calculate Each Series Discount Separately Three methods can be used to calculate a series discount and net cost Calculating discounts separately Complements Use a table Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 11

Example Target is offered a series discount of 30/15 on a bed set with a list price of $125. Find the net cost after the series discount. Apply the first discount in 30/15, 30%. Discount = 30% of list price of $125 = $37. 50 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 12

Example Amount after 1 st disct = $125 – $37. 50 = $87. 50 Now apply 2 nd discount, 15%, to $87. 50. Discount = 15% of the discounted amount = 15% of $87. 50 Net cost = $87. 50 – $13. 13 = $74. 37 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 13

Use Complements to Calculate Series Discounts Complement of a discount: subtract the decimal form of the discount from 1 Discount Decimal Finding Complement 10%. 1 1 –. 1 =. 90 20%. 20 1 –. 2 =. 80 25%. 25 1 –. 25 =. 75 30%. 30 1 –. 3 =. 70 62%. 62 1 –. 62 =. 38 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 14

Finding the Discount Using Net Cost Equivalent 1. Find the complement of each discount in the series discount. 2. Find the net cost equivalent by multiplying the complements from step 1. 3. The net cost after the discount is the list price times the net cost equivalent. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 15

Example Samsung offered a series discount of 20/10 on a Television with a list price of $480. Find the net cost after the series discount. Step 1 Discount Decimal Find Complement 20%. 2 1 –. 2 =. 8 10%. 1 1 –. 1 =. 9 Step 2 Net cost equivalent =. 8 ×. 9 =. 72 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 16

Example Step 3 Net cost after discount = List price × Net cost equivalent = $480 ×. 72 = $345. 60 To find the actual discount, subtract the net cost after discount from the original price. Discount = Original price – Net cost after discount = $480 – $345. 60 = $134. 40 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 17

Use a Table to Find the Net Cost Equivalent of Series Discounts Use a table to find net cost equivalents. Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 7. 1 - 18 18

Example Use the previous table to find the net cost equivalents of the following series discounts. (a) 10/10 (b) 20/10 (c) 25/25/5 (d) 35/20/15 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 19

Example (a) 10/10 Row 10, column 10% Net Cost Equivalent =. 81 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 20

Example (b) 20/10 Row 20, column 10% Net Cost Equivalent =. 72 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 21

Example (c) 25/25/5 Row 25/25, column 5% Net Cost Equivalent =. 534375 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 22

Example (d) 35/20/15 Row 20/15, column 35% Net Cost Equivalent =. 442 Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 23