Math of 4-1

4
Merchandising

Mathematics
of

Chapter 4

McGraw-Hill Ryerson
 Math of 4-2

4 Learning Objectives
Merchandising

After completing this chapter, you will be able to:

Calculate
LO 1. the net price of an item after single or
multiple trade discounts

LO 2. a single discount rate that is equivalent

to a series of multiple discounts
LO 3. the amount of the cash discount for
which a payment qualifies
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 Math of 4-3

4 Learning Objectives
Merchandising

Understand
LO 4. the ordinary dating notation for the
terms of payment of an invoice

Solve
LO 5. merchandise pricing problems
involving mark ups and markdowns

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 Math of 4-4

4
Merchandising

Middlemen

Manufacturer Receive
Distributor
varying
levels of
Wholesaler
trade
discounts
Retailer Consumer

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 Math of 4-5

4 Trade Discount
Merchandising

LO 1.
Calculating
Formula
Amount of discount = dL
Discount Rate List Price

Formula Net Price = L(1 d)

i.e. Net Price = List Price Amount of Discount

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 Math of 4-6

4 Trade Discount
Merchandising

The price of office equipment is $3000.

The manufacturer offers a
30% trade discount.
Find the net price and the trade discount amount.
Formula Net Price = L(1 d) 30%
= 3000(1 .3)
= 3000(.7)
= $2100
Formula Amount of discount = dL
= .3* $3000 = $900
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 Math of 4-7

4 Trade Discount
Merchandising

An order for power tools has a $2100

net price after a 30% trade discount.
What is the list price?
Formula Net Price = L(1 d)
L = N/(1 d)
= 2100 /(1 .3)
= 2100/(.7)
= $3000
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 Math of 4-8

4
Merchandising Trade Discount
LO 2.
Series Discounts
This refers to the giving of further
discounts as incentives for more sales. Middlemen
Distributor
For example 15% off first
then 10% off next Wholesaler
then a further 5% off next

Note This does not mean a TOTAL of 30% Discount!

McGraw-Hill Ryerson
 Math of 4-9

4
Merchandising Trade Discount

The price of office furniture is $20000.

The series discounts are 20%,10%, 5%.
What is the net price?

Formula N = L(1 d)
N = L (1-d1) (1-d2) (1-d3)
= 20000(1-.2)(1-.10)(1-.05)
= 20000(.8)(.9)(.95)
= 20000(.6840) = $13680
McGraw-Hill Ryerson
 Math of 4 - 10

4
Merchandising Trade Discount

Find the single discount rate that is

equivalent to the series 15%, 10% and 5%.

Apply the multiple

N = L(1 d)
Step discounts to a N = 100 (1-d1)(1-d2)(1-d3)
1 List price of $100 discounts 15% 10% 5%
= 100 (.85* .90* .95)
Step Calculate the = 100 (.7268) = 72.68
2 dollar amount
of the discount = 100 72.67 = $27.33
27.33%
McGraw-Hill Ryerson
 Math of 4 - 11

4
Merchandising Trade Discount

The price of car parts is $20,000.

The series discounts are 20%, 8%, 2%.
What is the single equivalent discount rate?
Apply the multiple = 100(.8)(.92)(.98)
Step discounts to a
1 = $72.13
List price of $100
discount = 100 72.13
Step Calculate the dollar = 27.87
2 amount of the
discount = 27.87 %
McGraw-Hill Ryerson
 Math of 4 - 12

4 = 100 (.8)(.92)(.98)
Merchandising

Step 1 Step 2
100 72.13
72.13
27.87
.8 100

.92
27.87
.98
27.87 %

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 Math of 4 - 13

4
Merchandising

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 Math of 4 - 14

4 Cash Discount
Merchandising

LO 3. A discount given for the

prompt payment
of an account.
Invoice

Returned Goods
Freight
No Cash Sales Tax
Discount
&
Trade Discounts

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 Math of 4 - 15

4 Cash Discount
Merchandising

Discount & Credit Periods

May Within 10 Days Discount period

Period for buyer to

take advantage of
Discount Terms
Within 30 Days
Credit period
Period for buyers to
pay invoices

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Terms
 Math of 4 - 16

4 Cash Discount
Merchandising

LO 4. Terms

Invoice Terms 2/10, n/30

Dated May 3
2% discount IF paid in 10 days
Terms 2/10, n/30 IF Not then full amount
payable in 30 days

$500 Paid on May 10th

Therefore, discount can be claimed!
Net payment
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 Math of 4 - 17

4 Cash Discount
Merchandising

Formula N = L(1 d)
Invoice

Terms 2/10, n/30 N = 500(1-.02)

= 500(.98)

$500 = $490

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 Math of 4 - 18

4 Partial Payments
Merchandising

You owe $400. Your terms were 3/10, n/30.

Within 10 days you sent in a payment of $100.
How much is your new balance?
Step 1 Amount credited L = Amount paid /(1-d)
- or -
Amount credited = Payment /(1-d)
= $100/.97 100 - .03
Amount credited = $103.09
Step 2
Old Balance =$400 - $103.09 = $296.91 New Balance
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 Math of 4 - 19

4
Merchandising

Mark
&
Mark

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 Math of 4 - 20

4
Merchandising

LO 5.

Manufacturer Distributor
Selling
Cost Price
The price charged Wholesaler The price charged
to middlemen in to Consumers
The Distribution by Retailers
Chain
Retailer Consumer
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 Math of 4 - 21

4
Merchandising

The X Co. Inc

Gross Sales $ X
Less: Cost of Good Sold X
Gross Profit X
(or Margin/MarkUp)
Less: Operating Expenses X
Net Profit (Income) $ X

Operating Expenses are the expenses the

company incurs in operating the business,
McGraw-Hill Ryerson
e.g. rent, wages and utilities
 Math of 4 - 22

4
Merchandising

Formula

Selling Price (S) = Cost (C) + Markup (M)

Computer This
side up

$1200 = $900 + $300

Margin available to
meet Expenses and
make a Profit
McGraw-Hill Ryerson
 Math of 4 - 23

4 Mark
Merchandising

If the MarkUp is to be 33% on Cost then

Selling Price (S) = Cost (C) + Markup (M)

133% = 100% + 33.33%

% MarkUp is
Cost is 100%
The Rate
The Base
$ MarkUp is
The Portion
McGraw-Hill Ryerson
 Math of 4 - 24

4 Mark
Merchandising

You buy Sunday newspapers for $1.00.

You plan to sell them for $1.50.
(A) What is your $ markup?
(B) and your percent markup on cost?
(A) Selling Price $1.50
Less: Cost 1.00
MarkUp $ .50
(B) Percent markup on cost
= Dollar Markup = $ .50
= 50%
Cost $ 1.00
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 Math of 4 - 25

4 Mark
Merchandising

Calculating the Selling Price when

you know Cost & Percent Mark Up on Cost

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 Math of 4 - 26

4 Mark
Merchandising

Rays Appliances bought a sewing machine for $150.

To make the desired profit, he needs a 60% markup on Cost.
(A) What is Rays $ markup?
(B) What is his Selling price?
$ %/100
Selling Price 240
2? 1.60
?
Less: Cost 150 1.00
MarkUp 90? .60
S = C + M
= $150 + .60($150)
= $150 + $90
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= $240
 Math of 4 - 27

4 Mark
Merchandising

Calculating the $MarkUp

and Percent on Cost

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 Math of 4 - 28

4 Mark
Merchandising

Janes flower business sells floral arrangements

for $35. To make her desired profit, Jane needs a
40% markup on cost.
(A) What do the flower arrangements cost Jane?
(B) What is the dollar markup?
$ %/100 S = C + M
(A) Selling Price 35 ?
1.40 $35 = C + .40(C)
Less: Cost 25
? 1.00 $35 1.40C
MarkUp 10
? .40 1.40 = 1.40
(B) C = $25
M = S - C
M = $35 - $25
M = $10
McGraw-Hill Ryerson
 Math of 4 - 29

4 Mark
Merchandising

Calculating the MarkUp

and Percent on Selling Price

McGraw-Hill Ryerson
 Math of 4 - 30

4 Mark
Merchandising

Becomes Formula on
on Selling
Cost Price
Selling Price (S) = Cost (C) + Markup (M)
Selling Price is 100% Cost is 100% % MarkUp is
Selling Price Cost
The Base The Base The Rate

$ MarkUp is
The Portion
McGraw-Hill Ryerson
 Math of 4 - 31

4 Mark
Merchandising

You buy Sunday newspapers for $2.00.

You plan to sell them for $2.50.
(A) What is your $ markup?
(B) and your percent markup on Selling Price?
$ %/100
(A) Selling Price 2.50 1.00
Less: Cost 2.00 .80
MarkUp .50 .20
(B) % markup on Selling Price
Dollar Markup
Selling Price = $ .50 = 20%
$ 2.50
McGraw-Hill Ryerson
 Math of 4 - 32

4 Mark
Merchandising

Rays Appliances bought a sewing machine for $150.

To make the desired profit, a 60% markup on Selling
Price is needed. (A) What is the Selling price?
(B) What is the $ markup?
$ %/100
2? 1.00
(A) Selling Price 375 1.00 - .60
Less: Cost 150 .40 .40
MarkUp 225
? .60
S = C + M (B)
= $150 + .60(S) M = S - C
M = $375 - $150
.40S = $150
M = $225
S = $150/.40 = $375
McGraw-Hill Ryerson
 Math of 4 - 33

4 Mark
Merchandising

Janes flower business sells floral arrangements for

$35. To make her desired profit, Jane needs a 40%
markup on Selling Price.
(A) What do the flower arrangements cost Jane?
(B) What is the dollar markup?
$ %/100 S = C + M
(A) Selling Price 35 1.00 $35 = C + .40($35)
Less: Cost ?
21 ?
.60 $35 = C + $14
MarkUp 14
? .40
$35 - $14 = C
(B) M = S - C $21 = C
M = $35 - $21
M = $14
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 Math of 4 - 34

4
Merchandising Mark

Converting
McGraw-Hill Ryerson
 Math of 4 - 35

4 Mark
Merchandising

Converting 50%
33% MU
MU on
on Cost
SP = =? ?%%MU
MUononCost
S
% Markup on Selling Price % Markup on Cost
to to
% Markup on Cost % Markup on Selling Price

Formula Formula
% markup on S % markup on C
1 - % markup on S 1 + % markup on C
.33 .33 .50 .50
= = .50 = = .33
1 - .33 .67 1+ .50 1 .50
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 Math of 4 - 36

4
Merchandising

Mark

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 Math of 4 - 37

4 Mark
Merchandising

Formula
$Markdown
%Markdown =
Selling Price (original)

Sears marked down a $50 tool set to $36.

What is (a) the $markdown and (b) the %markdown?

$Markdown = Old S New S = $50 - $36 = $14 Markdown

%Markdown = Markdown = $14 = 28%
Old S $50
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 Math of 4 - 38

4 Mark
Merchandising

Ski bindings bought for $57.75 were marked up 45%

of the Selling Price. When the bindings were
discontinued, they were marked down 40%.
What was the Sale Price after the 40% markdown?
$ %/100 S = Cost/(1 - .45) 1.00
Selling Price $105.00
? 1.00 - .45
? S = $57.75 / .55 = .55
Less: Cost 57.75 .55
MarkUp $ 47.25 ? .45 = $105.00
Selling Price $105.00 1.00 S(R) = S * (1-d) 1.00
Less: Discount ?
42.00 .40 = 105.00* .60 - .40
*S(R) $ 63.00
? .60 = $63.00 = .60
* Reduced S
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 Math of 4 - 39

4
Merchandising

This completes Chapter 4

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