The Mathematics of Money

Copyright © 2008, The McGraw-Hill Companies, Inc.

For convenience, we will set this up as a table, similar to the invoice shown above:

Quantity Product # MSRP Total

500

350

800

Thingmies

Jimmamathings

Hoozamawhatzits

$4.95

$8.95

$17.99

$2,475.00

$3,132.50

$14,392.00

$19,999.50

($5,499.86)

$14,499.64

$00.00

$14,499.64

PLUS: Freight

Total due

Subtotal

LESS: 27.5% discount

Net

Description

The disadvantage of doing things in this way is that we do not directly see the net cost of

each item. However, if we need to know this, we can readily calculate it.

Example 8.3.3 What is the net cost for each jimmamathing in the previous example?

The net cost is 100%  27.5% 
 72.5% of the list price; (72.5%)($8.95) 
 $6.49.

A formula may not really be necessary, but if desired we can generalize what we have been

doing to a formula:

FORMULA 8.3.1

Tr ade Disounts

NP 
 LP(1  d)

where

NP represents the NET (DISCOUNTED) PRICE

LP represents the LIST PRICE

and

d represents the PERCENT DISCOUNT

Example 8.3.4 Rework Example 8.3.3, using Formula 8.3.1.

NP 
 LP(1  d)

NP 
 $8.95(1  0.275)

NP 
 $6.49

As we observed earlier, trade discounts are very similar to markdown, and in fact this for-

mula is likewise very similar to the markdown formula. While it is probably not necessary to

use this formula in every case, it may be helpful to have one available in some situations.

Example 8.3.5 Samir realized the he forgot to order 400 doohickeys. He called the

manufacturer and was given a price of $2,652 for them. He did not ask the list price,

but realizes that he needs to know it now. What is the list price for a doohickey?

The net price for each doohickey is $2,652/400 
 $6.63. To fi nd the list price, we can use

the formula with a bit of algebra:

NP 
 LP(1  d)

$6.63 
 LP(1  0.275)

8.3 Series and Trade Discounts 353