Page 116 - CalcBus_Flipbook

13-2 Merchandising CH 13]

state government, and the federal government. Then the actual wholesale cost that the retailer
pays for the physical goods that they supply to their customers less any discounts that the
wholesaler may apply to move his product to the retailer. From this list of influences, it is easy
to surmise that there is a lot of arithmetic with which the business owner must be competent
with just to be able to realize a profit when running their business. Oh, and let us also
emphasize that profit is not a dirty word; nobody works for free and those who demand they
do are fools or tyrants.

PURCHASE DISCOUNTS
Retailers are in the business of maximizing their profits and thus must buy the desired
quality of merchandise at the lowest prices available and sell for more than they paid. Good
business practice requires that buyers take advantage of available discounts as offered by
their wholesalers.

Trade Discounts
Manufacturers, processors, jobbers and wholesalers publish and distribute catalogs and
circulars to their customers, retail buyers, who make the decisions to buy and stock their
products for resale. These catalogs are often in three ring binders to accommodate updates to
products and product lines along with price sheets on the product. Computerized systems
employing the internet offer additional adaptations to the printed catalog. Price sheets list the
prices of the items and are often not the price the ultimate consumer, the retail customer, will
pay. The price sheet is the basis for the cost the retailer pays for the product, and the retailer
List Price: The price adds to this price their markup for the product.
of an article as shown When the price sheet is the “manufacturer’s suggested retail”, or list price, then the
in a list issued by the
manufacturer or by the supplier will also include a discount sheet that shows the wholesale price based on quantity
general body of and discounts for the product line being stocked. The discount rates vary according to the
manufacturers of the product line. Discounts from the list price allowed by the manufacturer or wholesaler for the
particular class of retailer are a trade discount. The price the retailer pays is the net price, which is the list price
goods. less any trade discounts. Amounts subtracted from a list price may include rebates and any
amounts negotiated between the customer and the seller. Additional amounts could include
Net Price: The price charges for added value, royalties, shipping, duty, taxes, service and installation. The trade
that the seller’s
customers pay. discount may be expressed as a dollar amount or percent of the manufacturer’s suggested
retail price.
Business owners are always on the hunt for ways to attract more customers who will
remain loyal buyers for many years. There are different strategies implemented to achieve this
goal. Some businesses choose a low-price, high volume strategy, while other businesses target
high-income customers by offering exclusive products. One of the most effective strategies is
to offer trade discounts and discount series. Businesses often offer a variety of discounts to
customers to encourage purchases of their products or to encourage volume purchasing as
well as incentivizing customers to make payments on time. Discounts can be structured in a
number of ways, but trade discounts and discount series are time-tested and effective means
of increasing sales and total revenues.

A Single Trade Discount. A single trade discount is a one-off benefit extended to the
buyer when the individual makes a purchase that meets certain conditions to qualify for the
discount. The conditions may include bulk purchasing, cash purchasing, or the items might
be sold during a sale promotion. Single trade discounts may be applied as a group, reducing
the total purchase price. For instance, a seller might extend a 20% discount if the buyer
purchases $10,000 or more worth of product. Thus the discount will only come into effect
once the total value purchased meets or exceeds the $10,000 threshold.
To calculate the net price in a single trade discount:
1. To calculate the value of the discount when expressed as a percent, multiplying
the list price by the rate of discount percent, then subtract that value from the
list price.

2. To calculate the net price when (a) the discount is a percent, subtract the
discount percent from 100%, convert to a decimal and multiply that value by the
list price [List Price x (100% - discount percent)] to calculate the net price. (b) To
calculate the net price when the discounts are given as dollar amounts, sum up
the discounts and subtract that total from the list price. List price − ΣD1-n = net
price. The capital Greek letter sigma (Σ) in mathematics means to sum up the
Copyrighted Material