Page 85 - CalcBus_Flipbook

CH 10] Calculating Business 10-7

Solution algorithm: Dates Days Dollars Sum Totals
(a) 7-08 to 7-12 4 x 500 = 2,000
7-12 purchase + 125
7-12 to 7-14 2 x 625 = 1,250
Refer to Table 7.1 on page 7- 7-14 credit to the account - 25
11, The Number of each Day 7-14 to 7-25 11 x 600 = 6,600
in the Year which may assist 7-25 cash advance + 300
in your days calculation. 7-25 to 8-2 8 x 900 = 7,200 10
8-2 Payment on account - 250
8-02 to 8-08 6 x 650 = 3,900
31 20,950
20,950 ÷ 31 = $675.81 adjusted average daily balance

(b) $675.81 x 1.5% = $10.14 regular finance charge
$300.00 x 2.0% = $6.00 cash advance fee
$10.14 + $6.00 = $16.14 total finance charge
(c) $675.81 + $16.14 FC= $691.95 unpaid balance 8-08

Installment Credit
With credit, consumers tend to purchase more than when they pay cash for the goods.
With the growth of credit, purchasing goods on credit has increased rapidly. Many
purchases of household appliances, furniture, and automobiles are financed by the sellers
or lending institutions through various installment plans. The consumer as well as the
business employee need to know how to compute the finance charges, the amount of the
monthly payment, and the approximate annual percentage rate for all installment
purchases.
Calculating the Additional Cost of Installment Buying. Purchasing items on an
installment typically requires the buyer to pay a percentage of the cost as a down payment.
The buyer signs a purchase agreement to pay the balance due as a series of monthly or
weekly payments until paid in full. Their total cost is the sum of their down payment, plus
the installment payments including any interest and fee charges. The difference between the
cash price and the installment payment total is the additional cost for purchasing on an
installment plan.
Example: Gloria and Michael go to Ashley Furniture store to purchase a bed, dresser
with mirror and night stand, along with a sofa and loveseat for their home;
they are taking advantage of the stores advertised 30% off anniversary sale.

Their purchase selections includes:
Willow Queen Sleigh Bed, regular price $619, discounted to $496.
Willow Dresser with mirror, regular price $560, discounted to $448.
Willow Night Stand, regular price $230, discounted to $150.
12" Hybrid mattress in a box, regular price $611, discounted to $269.
Farah Sofa and Loveseat, regular price $1,280, discounted to $1,024.

Total Cash register price is $2,387; Tax on their purchase is 7.5% of the
purchase price and this amounts to ($2,387 x 0.075 = ) $179.03. Total price
with tax is $2,387.00 + $179.03 = $2,566.03.

They made arrangements with the store's credit department to put $513.03
as a down payment on the total purchase of $2,566.03 and pay off the
balance over 36 months at $60 per month.

How much more than the cash price will be paid on this transaction?

Solution algorithm:
$ 513.03 down payment
+ 2,160.00 payments (36 x $60)
$ 2,673.03 total installment price
- 2,566.03 cash price
$ 107.00 additional expense of using installment plan

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