Math of

4-1

4
Merchandising

Mathematics
of

Chapter 4

Harith Shaari, School of

Management & Business

Math of

4
Merchandising

Learning Objectives

4-2

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

Harith Shaari, School of

Management & Business

Math of

4
Merchandising

Learning Objectives
Understand

LO 4.

the ordinary dating notation for the

terms of payment of an invoice

Solve
LO 5.

Harith Shaari, School of

Management & Business

merchandise pricing problems

involving mark ups and markdowns

4-3

Math of

4-4

4
Merchandising

Middlemen
Manufacturer

Receive
Distributor
varying
levels of
Wholesaler

trade
discounts
Retailer

Harith Shaari, School of

Management & Business

Consumer

Math of

4-5

4
Merchandising

Trade Discount

LO 1.

Calculating
Formula
Amount of discount = dL

Discount Rate
Formula

i.e.

List Price

Net Price = L(1 d)

Net Price = List Price Amount of Discount

Harith Shaari, School of

Management & Business

Math of

4
Merchandising

4-6

Trade Discount

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
Harith Shaari, School of
Management & Business

Net Price = L(1 d)

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

Math of

4
Merchandising

4-7

Trade Discount
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
Harith Shaari, School of
Management & Business

Math of

4
Merchandising

4-8

Trade Discount

LO 2.

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

Middlemen
Distributor
Wholesaler

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

Harith Shaari, School of
Management & Business

Math of

4-9

Trade Discount

Merchandising

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
Harith Shaari, School of
Management & Business

Math of

4
Merchandising

4 - 10

Trade Discount
Find the single discount rate that is
equivalent to the series 15%, 10% and 5%.

Step
1

Step
2
Harith Shaari, School of
Management & Business

Apply the multiple

discounts to a

List price of $100

Calculate the
dollar amount
of the discount

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

Math of

4
Merchandising

4 - 11

Trade Discount
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 the multiple

discounts to a

List price of $100

Step Calculate the dollar

amount of the
2

discount
Harith Shaari, School of
Management & Business

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

= $72.13
discount = 100 72.13
= 27.87
= 27.87 %

Math of

4 - 12

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

Merchandising

Step 1

Step 2

100

72.13

.8

100

72.13
27.87

.92
.98

27.87
27.87 %

Harith Shaari, School of

Management & Business

Math of

4
Merchandising

Harith Shaari, School of

Management & Business

4 - 13

Math of

4
Merchandising

LO 3.

Invoice

4 - 14

Cash Discount
A discount given for the
prompt payment
of an account.

Returned Goods
Freight
No Cash
Discount

Sales Tax
&

Trade Discounts
Harith Shaari, School of
Management & Business

Math of

4 - 15

4
Merchandising

Cash Discount
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

Harith Shaari, School of

Management & Business

Terms

Math of

4 - 16

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
Harith Shaari, School of
Management & Business

Math of

4 - 17

Cash Discount

Merchandising

Formula

N = L(1 d)

Invoice

Terms 2/10, n/30

$500
Harith Shaari, School of
Management & Business

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

Math of

4
Merchandising

4 - 18

Partial Payments
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

Harith Shaari, School of
Management & Business

Math of

4 - 19

4
Merchandising

Mark

&

Mark

Harith Shaari, School of

Management & Business

Math of

4 - 20

4
Merchandising

LO 5.

Manufacturer

Distributor

Selling
Price

Wholesaler

The price charged

to Consumers
by Retailers

Cost
The price charged
to middlemen in
The Distribution
Chain

Retailer
Harith Shaari, School of
Management & Business

Consumer

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,
e.g. rent, wages and utilities
Harith Shaari, School of
Management & Business

Math of

4 - 22

4
Merchandising

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

Computer
$1200

This
side up

$900

$300

Margin available to
meet Expenses and
make a Profit
Harith Shaari, School of
Management & Business

Math of

4 - 23

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
Harith Shaari, School of
Management & Business

Math of

4
Merchandising

4 - 24

Mark
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

= Dollar Markup
Cost
Harith Shaari, School of
Management & Business

on cost
=

$ .50
$ 1.00

= 50%

Math of

4
Merchandising

4 - 25

Mark

Calculating the Selling Price when

you know Cost & Percent Mark Up on Cost

Harith Shaari, School of

Management & Business

Math of

4 - 26

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

Harith Shaari, School of

Management & Business

240
2?
150
90?

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

1.60
?
1.00
.60

Math of

4
Merchandising

4 - 27

Mark

Calculating the $MarkUp

and Percent

Harith Shaari, School of

Management & Business

on Cost

Math of

4 - 28

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?
$

(A) Selling Price

Less: Cost
MarkUp

(B)

Harith Shaari, School of

Management & Business

M
M
M

35
25
?
10
?

= S - C
= $35 - $25
=
$10

%/100
?
1.40

1.00
.40

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

Math of

4 - 29

Mark

Merchandising

Calculating the MarkUp

and Percent

Harith Shaari, School of

Management & Business

on Selling Price

Math of

4 - 30

4
Merchandising

Mark

Becomes 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
Harith Shaari, School of
Management & Business

Math of

4 - 31

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
$

(A) Selling Price 2.50

Less: Cost
2.00
MarkUp
.50
(B)

Harith Shaari, School of

Management & Business

Price?

%/100

1.00
.80
.20

% markup on

Selling Price

Dollar Markup
Selling Price

= $ .50
$ 2.50

20%

Math of

4 - 32

4
Merchandising

Mark

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

S = $150/.40 = $375

Harith Shaari, School of

Management & Business

Math of

4 - 33

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?
$

(A) Selling Price 35

?
21
Less: Cost
MarkUp
14
?
(B)

Harith Shaari, School of

Management & Business

M
M
M

= S - C
= $35 - $21
=
$14

%/100

1.00
?
.60
.40

S = C + M
$35 = C + .40($35)
$35 = C + $14
$35 - $14 = C
$21 = C

Math of

4
Merchandising

4 - 34

Mark

Converting
Harith Shaari, School of
Management & Business

Math of

4 - 35

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
1 - % markup on S
.33
1 - .33
Harith Shaari, School of
Management & Business

.33
.67

= .50

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

.50
1 .50

= .33

Math of

4 - 36

4
Merchandising

Mark

Harith Shaari, School of

Management & Business

Math of

4 - 37

Mark

4
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

%Markdown =
Harith Shaari, School of
Management & Business

= $50 - $36 = $14 Markdown

Markdown = $14
$50
Old S

28%

Math of

Mark

4 - 38

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
- .45
1.00
Selling Price $105.00
?
S = $57.75 / .55
= .55
?
57.75 .55
Less: Cost
?
MarkUp $ 47.25
= $105.00
.45

1.00 S(R) = S * (1-d)

1.00
= 105.00* .60 - .40
.40
= $63.00
= .60
.60
$ 63.00
?

Selling Price $105.00

Less: Discount
?
42.00
*S(R)
* Reduced S
Harith Shaari, School of
Management & Business

Math of

4 - 39

4
Merchandising

This completes Chapter 4

Harith Shaari, School of

Management & Business