# CHAPTER 7 - LECTURE NOTES

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```					CHAPTER 7 - LECTURE NOTES After reading Chapter 7 the main concepts are summarized below to solve the word problems dealing with discounts. Chapter 7 deals with purchasing merchandise inventory to resell to consumers. STEP 1: Carefully read the word problem to determine what you need to solve for in the problem. STEP 2: To solve problems dealing with single trade discounts, determine the two portions of the base where base is the list price or 100%. So, if the trade discount is 30%, then: Spending Saving Portion Portion 30% Trade Disc. Net price (Complement of Trade Discount) 70% (100% - 30%) STEP 3: Draw the blueprint aid which is a pie chart with three parts as follows: P = Portion (an amount) B = Base R = Rate List Price % (100%) (Portion and Rate must relate to the same part of base as in Step 2 above) STEP 4: use for end of chapter WORD PROBLEMS 7-21and 7-38 To solve for the portion of "trade discount", enter the List Price into the base section, enter the trade discount % in the rate section, and multiply the list price X trade discount %. For example, if the problem states: The list price of a sofa is \$600 and the manufacturer offers a trade discount of 30%. Find the trade discount amount. To set up the problem: P=? (\$ trade discount amount)

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B = \$600 List Price

R = 30% Trade disc. %

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P = \$180 Trade Discount Amt. (\$600 - \$420) B = \$600 List Price R=? (Trade Disc. Rate)

To use the calculator, enter 180 ÷ 600 % (key) = (key). The display will show 30. Add a % sign for 30%. STEP 7: use for end of chapter WORD PROBLEMS 7-31and 7-37 To calculate the List Price when the net price and trade discount rate are known enter the net price in the portion section, enter the complement of the trade discount in the rate section, and divide the portion by the complement of trade discount. For example, if the problem states that the net price is \$120 and the trade discount rate is 40%, what is the list price? Set up the problem as follows: P = \$120 (Net Price) B=? List Price R = 60% (Complement of trade discount %)

To use the calculator, enter 120 ÷ 60% (key) = (key). The display will show 200. Add the \$ sign for \$200. STEP 8: use for end of chapter WORD PROBLEMS 7-25and 7-43When calculating Net Price with chain discounts, find the complement of each discount rate and convert each % to a decimal. Multiply the decimals together and do not round (this is the net price equivalent rate (NPE), and then multiply by this NPE rate by the list price. For example: Given a 5/10 chain discount with a list price of \$1,000, you calculate the net price by setting up the problem as follows: 5/10 = .95 X .90 X 1000 = (Display shows 855). Add the \$ sign for \$855. TIP: Using the TI - BA35 calculator you can check your calculations by entering 1000 - 5 % (key) - 10 % (key) = (key). The display will show 855. Add a \$ sign for \$855. If you also need to calculate the trade discount amount, you subtract the net price from the list price as follows: \$1,000 - \$855 = \$145. 3

STEP 11: To calculate the due date of an invoice, you need to know the days in a month by either knowing the poem (30 days has September, April, June and November, all the rest has 31 except February which is considered to be 28) or using your knuckles (where knuckles are months with 31 days - see p. 173). Do not rely on the calendar as you do not always have access to a calendar. IN FACT THE CALENDAR METHOD CANNOT BE USED TO SHOW THE DAYS IN A PERIOD. You begin with the last day of the month which has the invoice date and subtract the invoice date. You continue to add the days in the following months until you reach the day when the invoice is due. For example: The "due 80 days (n/80) after December 5th would be calculated as follows: Dec 31 - Dec 5 26 (days in December) + 31 (days in January) + Feb 23 (due date) 80 (total days) NOTE: THIS IS THE METHOD THAT MUST BE USED TO SHOW THE DAYS IN A PERIOD. STEP 12: use for end of chapter WORD PROBLEMS 7-34; 7-35; and 7-39. To calculate partial payments: 1. Calculate the amount that is credited (the amount that is credited as if you paid that amount) by dividing the partial payment by the complement of the discount rate. 2. Subtract the amount credited from the total amount owed for the outstanding balance. For example, if an invoice of \$1,000 dated July 8 with 2/10, 1/15, n/60 terms is paid with a partial payment of \$200 on July 22... The amount credited would be calculated as follows: \$200 ÷ .99 = \$202.02 The outstanding balance is calculated as follows: \$1,000 - \$202.02 = \$797.98

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