Math of

4-1

Merchandising

Mathematics
Mathem
of

Chapter
McGraw-Hill Ryerson

Math of

Merchandising

4-2

Learning
Objectives

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

Merchandising

4-3

Learning
Objectives
Understand

LO 4.

the ordinary dating notation for the

terms of payment of an invoice

Solve
LO 5.

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merchandise pricing problems

involving mark ups and markdowns

Math of

4-4

Merchandising

Middlemen
Manufacturer
Manufacturer

Receive
Distributor
Distributor
varying
levels of
Wholesaler
Wholesaler

trade
discounts
Retailer
Retailer

McGraw-Hill Ryerson

Consumer
Consumer

Math of

4-5

Merchandising

LO 1.

Trade Discount
Discount
Trade
Calculating
Formula
Formula
Amount of discount = dL

Discount
iscountRate
Rate L
LististPrice
Price
D
Formula
Formula

i.e.

Net Price = L(1 d)

Net Price = List Price Amount of Discount

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Math of

Merchandising

4-6

Trade Discount
Discount
Trade

The price of office equipment is $3000.

The manufacturer offers a
30% trade discount.
Find the net price and the trade discount
amount.
Formula

Formula

Formula
Formula
McGraw-Hill Ryerson

Net Price = L(1 d)

30%
30%
= 3000(1 .3)
= 3000(.7)
= $2100
Amount of discount = dL
= .3* $3000 = $900

More

Math of

Merchandising

4-7

Trade Discount
Discount
Trade
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)

Formula

L = N/(1 d)
= 2100 /(1 .3)
= 2100/(.7)

= $3000
McGraw-Hill Ryerson

Math of

Merchandising

LO 2.

4-8

Trade Discount
Discount
Trade

Series Discounts

This refers to the giving of further

discounts as incentives for more sales.

For example 15% off first

then 10% off next
then a further 5% off next

Note
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Middlemen
Distributor
Distributor
Wholesaler
Wholesaler

This does not mean a TOTAL of 30% Discount!

Math of

4-9

Trade Discount
Discount
Trade

Merchandising

The price of office furniture is $20000.

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

Formula
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

Merchandising

Trade Discount
Discount
Trade

Find the single discount rate that is

equivalent to the series 15%, 10% and 5%.
Apply
Applythe
themultiple
multiple
Step discounts
discounts to
toaa
1
List
List price
price of
of

$100
$100
Calculate
the
Calculate
the
Step
dollar
dollaramount
amount
2
of
ofthe
the

McGraw-Hill Ryerson

discount
discount

N = L(1 d)
N = 100 (1-d1) (1-d2)(1-d3)
discounts 15% 10% 5%
discounts
= 100 (.85* .90* .95)
= 100 (.7268) = 72.68
= 100 72.67 = 27.33%
$27.33
27.33%

Math of

Merchandising

4 - 11

Trade Discount
Discount
Trade
The price of car parts is $20,000.
The series discounts are 20%, 8%, 2%.
What is the single equivalent
discount rate?

Step
1

Apply
Applythe
themultiple
multiple
discounts
discounts to
toaa

List
List price
price of
of
$100
$100
Step Calculate the dollar
2

McGraw-Hill Ryerson

amount of the

discount

= 100(.8)(.92)(.98)
= $72.13

discount = 100 72.13

= 27.87
= 27.87 %

Math of

4 - 12

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

Merchandising

Step 11
Step

Step 22
Step

100

72.13

.8

100

72.13
27.87

.92
.98

27.87
27.87 %

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Math of

Merchandising

McGraw-Hill Ryerson

4 - 13

Math of

4 - 14

Cash Discount
Discount
Cash

LO 3.

A discount given for the

prompt payment
of an account.

Merchandising

Invoice

No Cash
Discount

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Returned Goods
Freight
Sales Tax
&
Trade Discounts

Math of

4 - 15

Merchandising

Cash Discount
Discount
Cash
Discount & Credit Periods

May Within 10 Days

Discountperiod
period
Discount
Period for buyer to
take advantage of
Discount Terms

Within 30 Days

Credit period
period
Credit
Period for buyers to
pay invoices

McGraw-Hill Ryerson

Terms
Terms

Math of

4 - 16

Cash Discount
Discount
Cash

LO 4.

Terms
Terms

Merchandising

Terms2/10,
2/10,n/30
n/30
Terms

Invoice

Dated May 3
Terms 2/10, n/30

$500

2% discount IF paid in 10 days

IF Not then full amount

payable in 30 days
Paidon
onMay
May10th
10th
Paid
Therefore, discount
discount can
can be
be claimed!
claimed!
Therefore,

Net payment
payment
Net
McGraw-Hill Ryerson

Math of

4 - 17

Cash Discount
Discount
Cash

Merchandising

Formula
Formula

N = L(1 d)

Invoice

Terms2/10,
2/10,n/30
n/30
Terms

$500
McGraw-Hill Ryerson

N = 500(1-.02)
= 500(.98)
== $490
$490

Math of

Merchandising

4 - 18

PartialPayments
Payments
Partial
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 11
Step

Step 22
Step

Amount credited L = Amount paid /(1-d)

- or Amount credited = Payment /(1-d)
= $100/.97 100
100 -- .03
.03
Amount credited == $103.09
$103.09

Old Balance =$400 - $103.09 = $296.91

$296.91 New
New Balance
Balance
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Math of

4 - 19

Merchandising

Mark

Up

&
Mark

Dow
n

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Math of

4 - 20

Merchandising

LO 5.

Manufacturer
Manufacturer

Distributor
Distributor

Selling
Selling
Price
Price

Wholesaler
Wholesaler

The price charged

to Consumers
by Retailers

Cost
Cost
The price charged
to middlemen in
The Distribution
Chain

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Retailer
Retailer

Consumer
Consumer

Math of

4 - 21

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,
e.g. rent, wages and utilities

McGraw-Hill Ryerson

Math of

4 - 22

Merchandising

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

Computer
$1200

This
side up

$900

$300

Margin available to
meet Expenses and
make a Profit
McGraw-Hill Ryerson

Math of

4 - 23

p
Mark
U
Mark

Merchandising

If the MarkUp is to be 33%

on Cost then

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

133%

100%

Cost is 100%
The Base

33.33%
% MarkUp is
The Rate

$ MarkUp is
The Portion
McGraw-Hill Ryerson

Math of

Merchandising

p
Mark
U
Mark

4 - 24

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
Less: Cost
MarkUp

$1.50
1.00
$ .50

(B) Percent markup on cost

= Dollar Markup = $ .50 = 50%
Cost
$ 1.00
McGraw-Hill Ryerson

Math of

Merchandising

p
Mark
U
Mark

4 - 25

Calculating the
the Selling
Selling Price
Price when
when

Calculating
you know Cost & Percent Mark Up on Cost

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Math of

4 - 26

p
Mark
U
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
Less: Cost
MarkUp

McGraw-Hill Ryerson

240
2?
150
90?

= C + M
= $150 + .60($150)
= $150 + $90
= $240

1.60
?
1.00
.60

Math of

Merchandising

p
Mark
U
Mark

Calculating the
the $MarkUp
$MarkUp
Calculating
and Percent
Percent
Cost
and
Cost

on
on

McGraw-Hill Ryerson

4 - 27

Math of

p
Mark
U
Mark

Merchandising

4 - 28

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
Less: Cost
MarkUp

(B)

McGraw-Hill Ryerson

25
?
10
?

M == SS -- CC
M
M == $35
$35--$25
$25
M
M ==
$10
M
$10

1.00
.40

$35 = C + .40(C)
$35 = 1.40C
1.40 1.40
C = $25

Math of

Merchandising

p
Mark
U
Mark

4 - 29

Calculating the
the MarkUp
MarkUp
Calculating
and Percent
Percent
Selling Price
Price
and
Selling

on
on

McGraw-Hill Ryerson

Math of

Merchandising

4 - 30

p
Mark
U
Mark

Becomes Formula
Formula on
on Selling
Cost Price
Selling Price (S)
Selling Price is 100%
Selling Price
The Base

= Cost (C) +
Cost is 100%
Cost
The

Base

Markup (M)
% MarkUp is
The Rate

$ MarkUp is
The Portion

McGraw-Hill Ryerson

Math of

4 - 31

p
Mark
U
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
$
%/100

(A) Selling Price 2.50

Less: Cost
2.00
MarkUp
.50

(B)

McGraw-Hill Ryerson

Price?

1.00
.80
.20

% markup on

Selling Price

Dollar Markup
Selling Price

= $ .50
$ 2.50

==

20%
%
20

Math of

Merchandising

p
Mark
U
Mark

4 - 32

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
1.00
2?
(A)
375
1.00 1.00
Selling Price
- .60
.60
150
.40
Less: Cost
.40
.40
MarkUp
225
.60
?
S = C + M
(B)
M == SS -- CC
M
= $150 + .60(S)
M == $375
$375--$150
$150
M
.40S = $150
M == $225
$225
M

S = $150/.40 = $375

McGraw-Hill Ryerson

Math of

p
Mark
U
Mark

Merchandising

4 - 33

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
35
1.00
$35 = C + .40($35)
Price
?
?.60
Less: Cost
21
$35 = C + $14
MarkUp
14
.40
?

(B)

McGraw-Hill Ryerson

M
M
M
M
M
M

== SS -- CC
$35--$21
$21
== $35
$14
==
$14

$35 - $14 = C
$21 = C

Math of

Merchandising

p
Mark
U
Mark

4 - 34

Converting
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Math of

4 - 35

p
Mark
U
Mark

Merchandising

Converting 50%
50%
33%MU
MU
MUon
on
onCost
Cost
SP ====
?%
%
MU
MU
on
on
Cost
Converting
33%
SP
???%
%
MU
MU
on
on
Cost
SS
%Markup
Markupon
onSelling
SellingPrice
Price
%

to
to

%Markup
Markupon
onCost
Cost
%

Formula
Formula
% markup on S
1 - % markup on S
.33
1 - .33
McGraw-Hill Ryerson

.33
.67

.50
== .50

%Markup
Markupon
onCost
Cost
%

to
to

%Markup
Markupon
onSelling
SellingPrice
Price
%

Formula
Formula
% markup on C
1 + % markup on C
.50
1+ .50

.50
1 .50

.33
== .33

Math of

4 - 36

Merchandising

D
Mark own

McGraw-Hill Ryerson

Math of

MarkDo

Merchandising

4 - 37

wn

Formula
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

%Markdown =
McGraw-Hill Ryerson

= $50 - $36 = $14 Markdown

Markdown = $14
Old S
$50

28%

Math of

Merchandising

MarkDo

4 - 38

wn

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
1.00
1.00
S = Cost/(1 - .45)
-- .45
.45
$105.00
1.00
?
Selling
==.55
.55
?
Price
Less: Cost
57.75 .55
S = $57.75 / .55
MarkUp $ 47.25
?
.45
Selling Price
$105.00
Less: Discount
?
42.00
$ 63.00
*S(R)
?
* Reduced S
McGraw-Hill Ryerson

= $105.00
1.00 S(R)
= S * (1-d)
.40
= 105.00* .60
.60
= $63.00

1.00
1.00
-- .40
.40
==.60
.60

Math of

4 - 39

Merchandising

This completes Chapter 4

McGraw-Hill Ryerson