14-Mathematics of Merchandising : Part 2 VU

LECTURE 14
MATHEMATICS OF MERCHANDISING
PART 2
OBJECTIVES
The objectives of the lecture are to learn about:
• Review Lecture 13
• Financial Mathematics Part 1
SERIES TRADE DISCOUNT
This refers to the giving of further discounts as incentives for more sales. Usually such discount is
offered for selling product in bulk.

If series discount of 15%, 10%, 5% are offered on list price, say L, of an item then net price is
calculated as follows:
Subtract 15% of L from L. Let the new price is L1.
L1 = L – (L × 15%)
Then subtract 10% of L1 from L1. Let the new price is L2.
L2 = L1 - (L1 × 10%)
Then subtract 5% of L2 from L2. The new price is net price of an item.
N = L2 – (L2 × 5%)

Or alternatively
N = L (1 – 15%) (1 – 10%) (1 – 5%)
Let d1 = 15%, d2 = 10%, d3 = 5% , then above formula becomes
N = L (1 – d1)(1 - d2)(1 - d3)

Remember: total discount is not 15% + 10% + 5% = 30%

SERIES TRADE DISCOUNT-EXAMPLE

The price of office furniture is Rs. 20,000
The series discounts are:
20%,10%, 5%
What is the net price?
For series trade Discount
Net price = (1-d1) (1-d2) (1-d3)
Here d1 = 20%, d2 = 10%, d3 = 5%. So

Net price = 20,000(1-0.2)(1-0.10)(1-0.05)

= 20,000(0.8)(0.9)(0.95)
= 20,000(0.6840)
= 13,680 Rs.

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LIST PRICE
An order for power tools has a Rs. 2100 net price after a 30% trade discount. What
is the list price?
Net Price
Net Price = L(1 – d)
L = N / (1 – d)
= 2100/(1 – 0.3)
= 2100 / (0.7)
= 3000 Rs.

EXCEL Calculation
EXCEL formula for list price was based on the calculation = 2100/(1 – 0.3).
The net price was entered in cell B67.
% Trade discount was entered in B69.
The formula for list price was entered in cell B71 as =B67/ (1-B69/100).
The answer is shown in cell C72 as 3000.

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TRADE DISCOUNT-EXAMPLE 2
Find the single discount rate that is equivalent to the series
15%, 10% and 5%.
Trade Discount
Apply the multiple discount 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%
EXCEL Calculation
EXCEL formula for net price was based on the calculation

=100*(1-0.15)*(1-0.1)*(1-0.05)
The formula for net price was entered in cell F8.
The formula is shown in cell F8.
The answer is shown in cell F12.

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In the following slide, the net price was calculated in cell F8. Then, the discount was
calculated assuming the list price was 100. This is a common method to assume 100
as the list price when no price is given but you are required to calculate the net
discount.

TRADE DISCOUNT-EXAMPLE 3
The price of car parts is Rs. 20,000.
The series discounts are 20%, 8%, 2%.
What is the single equivalent discount rate. Also find Rs discount?

Let Rs 100 is the list price then

Net price = 100(1 – 0.2)(1 - 0.08)(1 - 0.02)
=100(0.8)(0.92)(0.98)

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= 100(0.7213)
= 72.13%
Single equivalent discount rate = 100 - 72.13 = 27.87%
Rs. Discount = (0.2787)(20000)
= 5,574 Rs.
EXCEL Calculation
EXCEL formula for net price was based on the calculation
=100*(1-0.2)*(1-0.08)*(1-0.02)
The formula for net price was entered in cell F21.
The formula is not shown.
Price of car parts was entered in cell F23.
Formula for discount was based on (0.2787)(20000) and is shown in cell F24.
The answer is shown in cell F26 as 5574.

CASH DISCOUNT
A seller always desires to be paid by the buyer as soon as possible. A discount given
for the prompt payment of the dues is called Cash Discount. Such a discount is an
advantage to both the seller and the buyer. The buyer has a saving of money while the
seller has funds at his disposal.
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. For example, if the amount due is 100Rs, the buyer may pay 97Rs within 10 days or 100
Rs within 30 days.

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DISCOUNT PERIODS
Discount Periods are periods for the buyer to take advantage of Discount Terms.
CREDIT PERIODS
Credit Periods are periods for the buyers to pay invoices within specified times.
CASH DISCOUNT-EXAMPLE
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.

EXCEL Calculation
EXCEL formula for net price was based on the calculation = 50000*(1-0.02).
However, here an IF condition was applied, that means that if the payment date in
cell D31 ($ sign is put in front of row and column to fix its location) is less than or
equal to 10 May then the discount will be as given in cell D30. Here also $ sign was
used to fix the location of the cell.
In cell D38, the date was changed to 11 May and the same formula was applied
again. The result as shown in cell D39 and D40 are 0% (for % discount) and 0 Rs( for
Rs. Discount).

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