Answer to Question #153247 in Microeconomics for kris

Question

An invoice dated 15 August 2019 for RM3,750 inclusive of RM400 transportation charge was paid on 28 August 2019. If the trade discount was 15% and the cash discount terms were 6/10, 5/30, n/60, find (a) the trade discount offered (b) the cash discount if entitled (c) the amount paid 

Answer 1

a) ANSWER

Trade discount offered = RM502.50

SOLUTION

Trade discount is computed on the cost of goods sold, excluding any other costs.

Thus,

Cost of goods = gross invoice price - transportation charge

= RM3,750 - RM400

= RM3,350

Trade discount = RM3,350 × 15%

= RM3,350 × 0.15

= RM502.50

b) ANSWER

Cash discount = RM142.38

SOLUTION

The cash discount term 5/30 means that the buyer is entitled to a 5% cash discount if the invoice is settled within 30 days. Since the payment was made on 28 August 2019, that is after 13 days, a 5% cash discount will be earned.

Cash discount is calculated on net invoice price.

Net invoice price = gross invoice price - trade discount

= RM3,350 - RM502.50

= RM2,847.50

Cash discount = RM2,847.50 × 5%

= RM2,847.50 × 0.05

= RM142.375

= RM142.38

c) ANSWER

Amount paid = RM3,105.12

SOLUTION

Amount paid = invoice price - trade discount - cash discount

= RM3,750 - RM502.50 - RM142.38

= RM3,750 - RM644.88

= RM3,105.12