Gross Margin,

Trade Discount
and Discount Series
SLIDESMANIA.COM
 MELC:

● differentiate mark-up from margins;

ABM_BM11BS-Ih-3
● describe how gross margin is used in sales; and
ABM_BM11BS-Ih-4
● compute single trade discounts and discount
SLIDESMANIA.COM

series.
 Learning
Objectives:

1. differentiate mark-up from margins;

2. describe how gross margin is used in sales;
3. differentiate single trade discount from discount
series; and
4. compute single trade discount and discount series.
SLIDESMANIA.COM
 key terms

Cost of goods sold or cost of

sales is how much the seller buys
the item.
SLIDESMANIA.COM
 key terms

Discount series is a type of discount in

which several discounts are given at
different times and different conditions.
These are given to customers in order to
encourage them to purchase in volume.
SLIDESMANIA.COM
 key terms

List price is the fee for a service or

product before discounts are
reduced or sales are added.
SLIDESMANIA.COM
 key terms

Margin (also known as gross

margin) is sales minus the cost of
goods sold or cost of sales.
SLIDESMANIA.COM
 key terms

Mark-up is the amount by which the

cost of a product is increased in order
to derive the selling price. It can also
be defined as the sum of the
SLIDESMANIA.COM

expenses and profits.

 key terms

Net price is the final charge you pay

for a product or service after discounts
and sales taxes are computed.
SLIDESMANIA.COM
 key terms

Sales is the account used to report

the selling price of the merchandise.
SLIDESMANIA.COM
 key terms

Trade discount is a reduction from list price

granted to buyers. It is the amount by which
the retail price of a product is reduced by the
manufacturer when it is sold to the reseller or
customer. It could either be single discount or
SLIDESMANIA.COM

a series of discounts.
 How gross margin is used in sales?

Margin (more popularly known as gross margin) in

simple terms is revenue (sales) minus the cost of goods
sold (COGS)

Margin = sales – cost of goods sold.

SLIDESMANIA.COM
 Example:

If a flower pot sells for ₱300 & costs ₱200 to produce,

its margin would be calculated as ₱100. Margin = ₱300
- ₱200 = ₱100. If expressed in percentage terms, the
margin percentage will be 33.33% (calculated as the
gross margin divided by total sales i.e. (₱100/₱300) X
100. This is the mark-up based on sales or selling price.
SLIDESMANIA.COM
 Mark-up is the amount that should be added to the
manufacturing cost of a product to derive the price that
it should be sold at.

Continuing with our previous example, a mark-up of ₱100

from the cost price of ₱200 yields the ₱300 price. Or,
stated as a percentage, the mark-up percentage is 50%
(calculated as the mark-up amount divided by the product
cost i.e. (₱100/₱200) X 100.
SLIDESMANIA.COM
 Mark-up is the amount that should be added to the
manufacturing cost of a product to derive the price that
it should be sold at.

Continuing with our previous example, a mark-up of ₱100

from the cost price of ₱200 yields the ₱300 price. Or,
stated as a percentage, the mark-up percentage is 50%
(calculated as the mark-up amount divided by the product
cost i.e. (₱100/₱200) X 100.
SLIDESMANIA.COM
 What is the difference profit margin and
mark-up?

The difference between profit margin and mark-up

is that profit margin is sales minus the cost of
goods sold; meanwhile, mark-up is the amount by
which the cost is increased on a product to arrive
at the selling price.
SLIDESMANIA.COM
 Example:

If a company earned ₱15,000 in revenue (sales)

and the cost to produce it was ₱9,000, the gross
profit would be ₱6,000 and the gross profit
margin would be 40% = (₱15,000 – ₱9,000) /
(₱15,000).
SLIDESMANIA.COM
 Profit margin and mark-up show two different
sides of the transaction. The profit margin shows
the profit as it relates to the selling price or the
revenue generated, whereas the mark-up shows
the profit as it relates to the cost amount.

Typically, mark-up determines how much money is

being made on a specific item relative to its direct
costs, whereas profit margin takes into consideration
total revenues and total costs from various sources
SLIDESMANIA.COM

and various products.

 What is the difference
between Single Trade
Discount and Discount
Series?
SLIDESMANIA.COM
 Manufacturers and distributors give retailers
trade discounts as incentives for a sale.
Discounts are usually established by discount
rates, given in percent or decimal form, based
on the money owed. The discount, then, is a
percentage of the list price.
SLIDESMANIA.COM
 Sometimes, a manufacturer wants to
promote a particular item or encourage
additional business from a buyer. Also, buyers
may be entitled to additional discounts as a
result of buying large quantities. In such cases,
the manufacturer may offer additional discounts
that are deducted one after another from the
list price. Such discounts are called a trade
discount series, chain discounts or
SLIDESMANIA.COM

successive discounts.
 How to compute Trade Discount using a
Single trade discount rate?

1. Identify the single trade discount rate and the list price.
2. Multiply the list price by the decimal equivalent of the single
trade discount rate.

Trade discount = single trade discount rate x list price

T=RxL
SLIDESMANIA.COM
 How to compute the net price using the trade
discount?

1. Identify the list price and the trade discount.

2. Subtract the trade discount from the list price.

Net price = list price – trade discount

N=L–T
SLIDESMANIA.COM
 Example:

What is the net price (N) of a

compressor nebulizer with a
list price of ₱1,050.00 subject
to 15% discount?
SLIDESMANIA.COM
 Given: List Price = ₱1,050.00
Discount Rate = 15%

Find: a. Discount
b. Net Price
Solutions:

a. Discount = List Price X Discount Rate b. Net Price = List Price – Discount
= ₱1,050.00 X 15% = ₱1,050.00 - ₱157.50
SLIDESMANIA.COM

= ₱157.50 = ₱892.50
 In certain instances, a seller grants
additional discounts other than the discount
ordinarily given by him or her. For instance,
aside from the regular 20% discount, a
seller may grant a special additional
discount of 5%. The series of discounts is,
therefore, 20% and 5%. This is not,
however, equivalent to 25%.
SLIDESMANIA.COM
 How to compute Series of Discounts?

Example:
How much is the discount and the net
price of a cellular phone listed at
₱5,720.00 if given a 20% and 5%
discount?
SLIDESMANIA.COM
 Given: List Price = ₱5,720.00
Discount Rates = 20% and 5%

Find: a. Discount
b. Net Price
SLIDESMANIA.COM
 Solutions:

For a series of discount, there are three methods that we can use.

a. Method 1. Multiply the list price by the first discount rate.

The next discount rate is then applied on the difference
between the list price and the first discount to get the
second discount. Then, we deduct the second discount
from the said difference. We continue with the same
process depending on the number of discounts in the
series.
SLIDESMANIA.COM
SLIDESMANIA.COM
 b. Method 2. Deduct the first discount rate
from 100% and multiply the list price by the
rate obtained. Deduct the second discount
rate from 100% and multiply the first
balance obtained by the second balance
rate obtained.

100% - 20% (first discount rate) = 80

SLIDESMANIA.COM
SLIDESMANIA.COM
 c. Method 3. Convert the series of discounts to a single
equivalent rate. To do so, we first deduct the series of
discounts individually from 100% and then multiply the
resulting products by themselves to give us the net price
(N) rate. If we multiply the net price (N) rate by the list
price, we get the net price. Deducting the net price from
the list price will give us the single equivalent discount.
Alternatively, we deduct from 100% to get the single
equivalent discount rate. This single equivalent rate is
then multiplied with the list price to get the discount. When
we deduct the discount from the list price, we get the net
price.
SLIDESMANIA.COM
 Take note that if we add the net price (N) rate
and the single equivalent discount rate, we will
SLIDESMANIA.COM

get 100%.
SLIDESMANIA.COM