Trade Discount
is an allowance made by manufacturers and jobbers from their list or marking prices. When the market varies, they change the discount accordingly, or make several discounts instead of changing the list.
Trade discount is a certain per cent off, or from list or marking price; while profit and loss is computed on the cost or purchase price.
The amount of the discount allowed depends sometimes upon the amount of order, and sometimes upon the terms of settlement. Very often two or more discounts are deducted in succession. Thus, 10% and 5% off; or, as it is generally [872] expressed in business, 10 and 5 off, means a discount of 10%, and then 5% from what is left; 20, 10, and 5 off, means three successive discounts. A retailer’s profit is smaller when he is allowed 10 and 5 off, than if he were allowed 15 off. The result is not affected by the order in which the discounts are taken.
Example: I receive a bill of goods amounting to $100, 20% off. What is the net cost?
First Way:
20% of $100 =$20
$100 - $20 = $80
Second Way:
100% - 20% = 80%
80% of $100 = $80
Example: A merchant receives two bills of $200 each. On one there is a discount of 25%; on the other, 15% and 10%. What must he pay on each, net?
First Bill:
100% - 25% = 75%, or 3⁄4
3⁄4 of $200 = $150.
Second Bill:
100% - 15% = 85%
100% - 10% = 90%
90% of 85% = 76.5%
.765 × $200 = $153.