CHAPTER 8 – Trade and Cash Discounts

Mathematics of Buying
List Price
Trade Discounts
Net Price
8-2 Learning Outcomes

 Find the Net Price applying

a trade discount series and
using the net decimal
equivalent.
 Find the Trade Discount
applying a trade discount
series and using the single
discount equivalent.

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 Key Terms…
Section 8-2 Trade Discount Series

 Trade discount series or chain discount

– Additional discounts that are deducted one after
another from the list price.

Reasons to use discount series include:

To encourage volume purchases
To promote special or seasonal items
To attract new client

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 Find the net price applying a trade discount
8-2-1 series and using the net decimal equivalent
Section 8-2 Trade Discount Series

 One way to calculate the net price is to make a

series of calculations.
Trade discount series step by step

 Complements are used to find net prices directly.

– A faster method.

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 Find the net price applying a trade discount
HOW TO: series and using the net decimal equivalent
Section 8-2 Trade Discount Series

An item lists for $400 and has a discount of 20%.

$400 x 0.2 = $80; $400 - $80 = $320
An additional discount
Trade discount of 10%
series is step
step by
taken on the previous price.
$320 x 0.1 = $32; $320 - $32 = $288
An additional discount of 5%
is taken on the previous price.
$288 x 0.05 = $14.40; $288 - $14.40 = $273.60

$273.60 is the final price.

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 Can you add the discounts
together and apply it as one?
Section 8-2 Trade Discount Series

If the item has three discounts of

(20% / 10% / 5%), can you add them
together and apply a 35% discount?

No!
Each time you apply the additional
discount, the base becomes smaller.
Directly applying a 35% discount would
result in a final price of $260.
$260 ≠ $273.60
Business Math, Ninth Edition © 2012 Pearson Education, Inc.
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
HOW TO: Find the net decimal equivalent
Section 8-2 Trade Discount Series

Using the complement method to find the Net Price

 Multiply the decimal form of the complement

of each trade discount rate in a series.
 Multiply the list price by the net decimal
equivalent.

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 An Example…
Section 8-2 Trade Discount Series

Find the net price of an order with a list price

of $800 and a trade discount series of 20/10/5.

Find the complement of each

of the trade discount rates.
They are 0.80, 0.90 and 0.95.
Multiply them together.
0.80*0.90*0.95= 0.684
The net decimal equivalent is 0.684.

Apply the net decimal equivalent to the list price.

NP = 0.684 x $800 = $547.20
Business Math, Ninth Edition © 2012 Pearson Education, Inc.
Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 Examples…
Section 8-2 Trade Discount Series

 A refrigirator lists for $325 and has a trade

discount series of 20/10/10. Find the net price.
– $210.60
 A dress lists for $125 and has a trade discount
series of 15/10/7.5. Find the net price.
– $88.45

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
HOW TO: Use the trade discount
Section 8-1 Single Trade Discounts

Find the single discount equivalent by

subtracting the net decimal equivalent from 1.
Multiply the list price by the
single discount equivalent.

TD = single discount equivalent x list price

Use the single discount equivalent to calculate

the trade discount on a $3,200 lawn tractor
with a discount series of 30/20/10. MORE

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 An Example…
Section 8-2 Trade Discount Series

The
Find thesingle discount
net decimal equivalent
equivalent by is 0.496;
multiplying
apply it to theofprice
the complements eachof $3,200. rate.
discount
TD 0.70
= $3,200 x 0.496
x 0.80 x 0.90==$1,587.20
0.504
Use the
The single
trade
Subtract thediscount
discount equivalent
on the
net decimal tractor
equivalentisto calculate
$1,587.20.
(0.504)
the That
from trade todiscount
“1” is the
findamount onthat
the singlea $3,200
you do
discount lawn
not tractor
pay.
equivalent.
withThea discount series
result is 0.496 (orof49.6%).
30/20/10. MORE

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved
 Key Terms…
Section 8-2 Trade Discount Series

 Single discount equivalent

– The complement of the net decimal equivalent.
– It is the decimal equivalent of a single discount
rate that is equal to the series of discount rates.
 Total amount of a series of discounts
– Single discount equivalent x list price.
 Net amount you pay
– Net decimal equivalent x list price.

Business Math, Ninth Edition © 2012 Pearson Education, Inc.

Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel Upper Saddle River, NJ 07458 All Rights Reserved