Dec 3, 2010

Trade Discounts-Markup-Markdown- Trade Values- Trade Terms

Discount is a reduction in price which the seller offers to the buyer.

Amount of discount =    d × L
Where, d = Percentage of Discount
L = List Price
Net Price = L – Ld = L(1 – d)
Net Price = List Price – Amount of Discount 

Markup is an amount added to a cost price while calculating a selling price.

Markup as Percentage of Cost (MUC):
Here markup is some percentage of cost price. For simplicity, it is also named as %Markup on cost. The relation between %markup on cost, cost price and selling price is:
Selling Price = Cost price + (Cost price × %Markup on cost)
                    = Cost price (1 + %Markup on cost)

Markup as Percentage of Sale price (MUS):
Here markup is some percentage of selling price. For simplicity, it is also named as %Markup on sale. The relation between %markup on sale, cost price and selling price is:
Selling Price = Cost price + (Selling price × %Markup on sale)
Cost price = Selling price – (Selling price × %Markup on sale)
                 = Selling price (1 – %Markup on sale)

Rs Markup:
Markup in terms of rupees is called Rs markup. The relations between Rs markup, cost price and selling price are:

    1.   Selling Price = Cost price + Rs Markup
    2.   Rs Markup = %Markup on cost × Cost price
    3.   Rs Markup = %Markup on sale × Selling price

For example:
The cost price of certain item is 80Rs and its selling price is 100Rs. Then
Rs Markup = Selling price – Cost price
                  = 100 – 80
                  = 20 Rs

Markdown is a reduction from the list/cost price.

This refers to the giving of further discounts as incentives for more sales. Usually such discount is offered for selling product in bulk.

L = List price = 100
D = discounts

    Net price = L(1-D1)(1-D2)(1-D3)   
Single equivalent discount rate = L – Netprice =? %
Rs. Discount = (0.2787)(20000)
                             = 5,574 Rs

Find the single discount rate that is equivalent to the series
15%, 10% and 5%.
Apply the multiple discounts to a list price of Rs. 100.
Net price = (1-d1)(1-d2)(1-d3)
               = 100(1 -15%) (1 - 10%) (1 - 5%)
               =100(0.85) (0.9) (0.95)
               = 100(0.7268)
               = 72.68
% Discount = 100 - 72.68
                   = 27.62%

Cash Discount is allowed on Invoices, Returned Goods, Freight, Sales Tax and A common business phrase for a cash discount is "3/10, net/30," meaning that a 3% discount is offered if the amount due is paid within 10 days; otherwise 100% of the amount due is payable in 30 days

Invoice was dated May 1st. The terms 2/10 mean that 2% discount is offered if invoice is paid up to 10thMay.
What is the net payment for invoice value of Rs. 50,000 if paid up to 10th May?
Cash Discount
N = L(1 – d)
= 50,000(1-0.02)
= 50,000(0.98)
= 49,000 Rs.

Discount Periods are periods for the buyer to take advantage of Discount Terms.

Credit Periods are periods for the buyers to pay invoices within specified times.

When you buy on credit and have cash discount terms, part of the invoice may be paid within the specified time. These part payments are called Partial Payments.
You owe Rs. 40,000.
Your terms were 3/10 (3% discount by 10th day).
Within 10 days you sent in a payment of Rs. 10,000.
Rs. 10,000 was a part payment.
How much is your new balance?
First we will find the amount that if 3% discount is given on it, the net amount is 10000Rs.
Let that amount is t. Then
10000 = t (1 – 0.03)
This implies,    t =      10000    
                                (1 – 0.03)
Thus, t = 10309Rs
This means that although you pay 10,000Rs, due to 3% cash discount 10309Rs among 40,000Rs is paid.
Hence the new balance = 40000 – 10309 = 29691Rs.

No comments:

Post a Comment


accredited distance education Ambush Marketing Benchmarking Benefits of MBA Books Branding Business Communication Business Negotiation Career Guide Case Studies CMAT Consumer Adoption Process Corporate Social Responsibility CRM CV Writing Debentures Depreciation Distance Learning Economics topics EMBA Employee Retention Entrepreneurship Finance your MBA Financial Analysis Financial Management Financial Planning Financial statement Formal Report Fund Flow Statement Gmat GRI Group Discussion Hotel Management HR notes International Marketing Leadership Letter of Intent london business school Management Notes Manager of Sales Managerial Decisions Marketing Concepts Marketing Management Marketing Mix Marketing Tips MBA Assignment MBA Careers mba courses MBA Definitions mba degree MBA Dissertation Topics MBA Economics Project MBA Finance Topics MBA Glossary MBA Guide MBA in Australia mba in canada MBA in International Business MBA in IT mba in malaysia MBA in public relations MBA in UK mba in usa MBA Interview MBA Jobs MBA Jobs In Australia MBA Loan MBA Notes MBA Outsourcing MBA Presentations MBA Prjoject Reports MBA Programs MBA Ranking MBA Salary MBA Scholarships MBA Sponsorships MBA Student MBA without GMAT MBO Media Planning Process Mini MBA Motivation Online Accredited MBA online mba Online MBA and Correspondence MBA Opportunity Cost Overseas Education Consultants Part Time MBA PEST analysis PLC Popular Business Schools Porter's 5 Forces Profit Maximization and Wealth Maximization Project Management Project Report Projects Tips Resume Writing Scientific Management Segmentation Strategic management Study Abroad Study in Germany Supply Chain Management SWOT Team Management Skills Theories top mba TQM Trade Discounts Training & Development Trend Analysis Types Of MBA Views of Management viral marketing Women In MBA