Chapter 2 - Buying Merchandise

8/13/2019 Chapter 2 - Buying Merchandise

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CHAPTER 2

Buying Merchandise


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TERMS TO BE FAMILIARIZED WITH:

Wholesalers

Retailers

Trade Discount (TD)

Net Price (NP) Invoice

List Price (LP)

Trade Discount Rate (TDR)

Single Equivalent

Trade Discount Rate(SETDR)

Cash Discounts

Receipt of Goods (ROG)

Cash on Delivery (COD)


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WHOLESALERS

- sell their merchandise in bulk or large

quantities in boxes, big packages and

by large number of pieces.

NET PRICE (NP)

- the price of the merchandise thatappears in the invoice.

BILL


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TRADE DISCOUNT (TD)

- is usually a percentage reduction inprice of a merchandise granted by a

manufacturer or a wholesaler to the

retailer.

LIST PRICE (LP)

- the manufacturers recommended price.

Suggested Retail Price (SRP)


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Reasons of offering a Trade Discounts:

1. Adjust list prices to prevailing marketprices.

2. Secure the trade of desirable customers.

3. Attract retailers to buy large quantities.


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Try this!

XYZ Suppliers gives a trade discount

of 18% on a certain appliance item for a

minimum purchase of 1 dozen at a list

price of P2,500 per piece. If a retailer

buys a dozen of the appliance, how much

will he pay per piece? for a dozen?


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SUCCESSIVE TRADE DISCOUNTS

- is a method of granting two or more

trade discounts to the retailers.

NP (for k successive discount rates)

= LP ( 1TDR1)( 1TDR

2) , .....(1TDR

k)


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Example 1

If a DVD player has a list price ofP3,400.00 and trade discounts of 20% and

10%, how much is the a) net price, and b)

trade discount?a) NP = LP (1TDR1)( 1TDR2)

= P3,400.00 (10.20)( 10.10)

= P 3,400.00 (0.80)( 0.90)

= P2,448.00


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b)

TD = LP - NP= P3,400.00P2,448.00

= P952.00

Hence, the net price is P2,448.00 and the

trade discount is P952.00.


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Example 2

Mrs. Navarro bought a flat television

set with a listed price of P14,600.00 subject

to 15%, 10% and 5% trade discounts. How

much did she pay?Solution:

NP = LP (1TDR1)( 1TDR2)( 1TDR3)

= P14,600.00 (10.15)(10.10)(10.05)

NP = P10,610.55


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SINGLE EQUIVALENT TRADE DISCOUNT

RATE (SETDR)

SETDR =

[ 1(1TDR1

)(1TDR2

),...(1TDR3

)] x 100%


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Example 1

A certain item is subject to 20% and10% trade discounts . Find the single

equivalent trade discount rate (SETDR).

Given: TDR1= 20% TDR 2= 10%

Solution:

SETDR = [ 1(10.20)(10.10)] x 100%

= [1(0.80)(0.90) x 100%

SETDR = 28%


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Example 2

A calculator has a list price ofP845.00 subject to 20%, 10% and 5%

trade discounts. Find the:

a. SETDRb. net price

c. trade discount


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Some examples of Payment Terms:

1. 2/10, n/30A 2% cash discount is deducted

from the total amount of the

merchandise if payment is made duringthe 10-day discount period. The n/30

indicates that the total amount must be

paid within 30 days.


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2. 5/10, 2/10, n/30

This means that 5% may be deductedfrom the bill if paid within 10 days of the

discount period; 2% if paid from the 11th

to the 20th day; or if not, full payment ofthe goods is due from the 21st to the 30th

day of the date of the invoice.


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3. 3/7, e.o.m

The buyer will receive a 3% cash discountif the bill is paid within 7 days of the next

month.

4. 3/7, e.o.m., n/30

This means that the buyer will receive a

3% discount if the bill is paid within 7 daysof the next month; or if not, the bill would

have to be paid in full from the 8th to the

30th day of the next month.


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5. r.o.g

This means that the discount periodbegins upon the receipt of the goods by

the buyer.

6. c.o.d

Cash on delivery. Payment would have to

made upon the delivery of the goods.


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Examples:

State the payment due of the following

invoices:

INVOICE DATE PAYMENT TERM

A. January 5 10 E.O.M.

B. August 1 30 DAYS

C. March 2 5/10, N/30

D. October 27 15 E.O.M.

E. April 12 C.O.D.

F. March 10 8/10, E.O.M., N/60

G. January 5 10 + 30X

H. MaY 7 10 R.O.G.

Chapter 2 - Buying Merchandise

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