Understand Our on Invoice Discount Example for Purchasing to Streamline Your Transactions

On invoice discount example for Purchasing

In this section of math with business applications were going to take a look at invoices and trade discount. An invoice of course is a printed record of a purchase and sale. The seller has an invoice as well as the purchaser showing among other things it shows the quantity ordered the number shipped the unit price and the price by the unit. Here we have the seller home accessory wholesales in this example, and kitchen galore being the buyer. We can determine what the extended price is by taking the quantity this case 9 dozen times the price per dozen to give us our extended or extension total here. Doing similar multiplication to determine the extension price for the food processors. Eight were purchased as indicated under the quantity at $106.12 cents each, and same thing with stainless tongs fifty three pairs at 68.12 we would multiply to give us the value showing. Invoice total then is the sum of our purchases. This has a flat shipping insurance already printed on the form, and we would add that to our invoice total for the total amount due. There's one note to make here that trade and cash discounts which will be discussed later in the chapter are never applied to shipping and insurance charges. For this reason shipping and insurance charges are often not included in the invoice total. So the purchaser must add them to the invoice total to find the total amount due, and here they're showing us the non-tax total would be the value we would use to calculate the discount on not the grand total or the invoice total. When we're making purchases we have some common shipping terms the first one will take a look at is FOB that is short for free on board we have two types of free on board one is free on board shipping point this is where the ownership is of the buyer takes place at the shipping dock and the shipping charges are the buyer's responsibility. We also have free on board destination this is where the seller pays the shipping charge and retains ownership until the goods reached the destination. Another shipping term is COD its not fish in other words it stands for cash on delivery and this is where payments for good or goods is made at the time of delivery this used to be very common thirty forty years ago when there was someone home to receive a delivery during the day and could pay for that. The advent and popular use of credit cards has replaced the cash on delivery method. FAS is short for free alongside ship, this means that the goods are delivered to the dock with all freight charges to that point paid by the seller. Some additional terms when we're dealing with invoices are common abbreviations ea for each, doz is abbreviation for dozen 12 items. The abbreviation shown is for gross a gross is a dozen, dozen or 144 items we have a gr gro, which is short for a great gross that's twelve gross so it would be 12 times 144. Next abbreviation is for barrel, pr for pair so it would be a price per pair. CWD C is from the Roman numerals which stands for one hundred and means the charge would be per 100 weight. Trade discounts are often given to businesses or individuals who buy an item for resale or produce an item that will then be sold. Sellers suggest a selling price at the retail level but it's sold to the merchant at a reduced amount. This is something called a net cost or net price which is the amount that the buyer is paying. Let's look at an example here the manufacturer has a suggested list or selling price of 23.75 however, they're offering a trade discount to the buyer of 45%. That means if we would do the calculation the buyer who would later we'll sell this at or near the list price only has to pay $13.06 and that net cost is found by taking the list price minus the trade discount. In this example they're asking us to determine what that net cost is we have a sharp calculator with the list price of 18.99 the trade discount is 35% so we're looking for what part is the savings for the discount amount so we will take base which is a list price times are rate of 35% we have a discount of 6.65 off from the list price subtracting discount from the list price gives us the net cost and this is what the buyer would be paying resulting in $12.34. Sometimes multiple discounts are offered these are called series or chain discounts, and they might be expressed like this 15/5. It's important that we calculate these separately 15% discount is applied first and then a 5% discount is applied to the lower price. It is important to never add a series discount together so this is not the same as 20% discount. Let's see how this works there are two methods of calculating a series of discounts. We'll take a look at one way here we have a list price for an item given a series discount of fifteen five and the question is to find the net cost. So this involves us doing 2% calculations we'll take the original list price add a discount of 15% to find the part we will then subtract that discount from the original list price, and if there was only the 15% discount we would have our value. But there's a second discount so we will take the new net cost multiplied by the second discount rate to find savings or the discount from that price and the final cost will be the difference between the first net cost, and the second discount for a $72.63 price. Again we have another example where we're using the method of computing each discount separately. Here we have a list price given, and a series of discount 20/10 will start out using the 20% on the list price multiplying base time rate gives us are discount, and if there was only this one discount we would have a net cost of $439 but because of the additional discount we will now use the 439 as our base. Determine what the part is when we take the second discount rate of 10% which is equal to 43.90 and the final net cost or price will be the 439 minus that second discount for a final net cost of $395.10. We have another problem showing here asking us to determine the net cost there's only one trade discount but instead of just taking 15% of the list price, and then subtracting that. Think about how the problem lays out our list price is 100% we're subtracting the trade discount which is 15% and are net cost amounts to the difference between one hundred percent minus the 15% trade discount. So instead of finding the part 15 percent of the base, and then subtracting using the complement which is 100% minus 15%. 85% we're doing our subtraction first, and then finding our answer. We're still doing two steps but it's much easier to do the subtraction of the percentages, and then do our modification to find the net cost. So since it's discounted 15% we're going to use the compliments of 15% to determine the net cost 682.09 times the 85% gives us the net cost.