Lesson 3.

Discounts

Business Mathematics
Accountancy, Business, and Management

1
Discounts encourage
clients to buy large
quantities. These could
also serve to reward their
loyalty.

2
Do you agree that giving
discounts is advantageous to
buyers and disadvantageous to
sellers?

3
Perks of Being A Loyal Customer
As a loyal customer of an online shop, you are entitled to a 20%
discount for purchasing items worth at least ₱500. Your total bill is
₱1,200. What is 20% of your total bill?

4
Solution:

Step 1: Identify what is required in the problem.

You are asked to calculate 20% of your total bill (D).

5
Solution:

Step 2: Identify the given in the problem.

The total bill (A) and the rate (R) are given.

A = ₱1,200
R = 20%

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Solution:
Step 3: Write the working equation.
D = A∙R

Step 4: Substitute the given values.

D = A∙R
D = (1,200)(0.20) = 240

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Solution:
Step 5: Find the answer.
D = 240

The 20% of ₱1,200 is ₱240.

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Questions to Ponder

1. How do buyers benefit from discounts?

2. What previous experience can you share about the application of discount?
3. How is giving discounts advantageous to businesses?

9
Do customers benefit from trade and
cash discounts offered by
manufacturers?

10
Discounts

● Individuals are encouraged to buy in bulk when discounts are

provided; businesses also behave similarly.
● Controlling the cost is one way to ensure profitability:
○ to maximize profits
○ to sell products at a much lower price

11
Discounts

● Purchasing managers work with suppliers to get the most considerable

discount possible.
● Manufacturers and wholesalers are willing to offer these discounts to
entice retailers to buy large quantities.

12
 Trade Discount

● a deduction given by wholesalers and manufacturers to the retailers

● retailers earn profit by selling the merchandise to the end customer at
full price
● can be a single discount or a series of discounts

13
 Trade Discount

List Price Net Price

● same as retail price
● the price indicated in a ● same as invoice price
catalog ● the amount paid after a
discount has been applied and
subtracted from the list price

14
 Trade Discount

Single Discount Formulas to use:

● when there is only one deduction
TD = LP – NP
TD = trade discount TD = LP ∙ DR
LP = list price or retail price NP = LP – TD
DR = discount rate NP = LP(1 – DR)
NP = net price

15
 Single Discount

1. The list price of a 23-in LCD monitor is ₱12,820. The retailer is given a
25% discount. What is the net price of 20 monitors?

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the net price (NP) of 20
monitors.

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 Single Discount

Step 2: Identify the given in the problem.

The list price (LP) and the discount rate (DR) are given.

LP = ₱12,820
DR = 25%

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 Single Discount

Step 3: Write the working equations.

TD = trade discount
TD = LP ∙ DR
NP = LP – TD

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 Single Discount

Step 4: Substitute the given values.

TD = LP∙DR
TD = (12,820)(0.25) = 3,205

NP = LP – TD
NP = 12,820 – 3,205 = 9,615 ⇒ price of one monitor (₱)
9,615∙20 = 192,300 ⇒ price of 20 monitors (₱)

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 Single Discount

Step 5: Find the answer.

NP = 192,300

The net price of 20 monitors is ₱192,300.

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 Single Discount

2. A 2-door 7.5 cubic feet refrigerator lists at ₱14,200 and is billed to the
retailer at ₱9,230. How much is the trade discount rate?

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the trade discount rate (DR).

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 Single Discount

Step 2: Identify the given in the problem.

The list price (LP) and the net price (NP) are given.

LP = ₱14,200
NP = ₱9,230

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 Single Discount

Step 3: Write the working equations.

TD = trade discount
TD = LP – NP

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 Single Discount

Step 4: Substitute the given values.

TD = LP – NP = 14,200 – 9,230 = 4,970

Step 5: Find the answer.

DR = 35%

The rate of trade discount is 35%.

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 Trade Discount

Series of Discounts
● when there is at least two trade discounts in any business

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 Trade Discount

Series of Discounts
Steps in Calculating a Series of Discounts
1. TD1 = LP ∙ DR1

where
TD1 = 1st trade discount
LP = list price
DR1 = 1st discount rate

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 Trade Discount

Series of Discounts
Steps in Calculating a Series of Discounts
2. NP1 = LP – TD1

where
NP1 = net price after the first discount

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 Trade Discount

Series of Discounts
Steps in Calculating a Series of Discounts
3. TD2 = NP1 ∙ DR2

where
TD2 = 2nd trade discount
DR2 = 2nd discount rate

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 Trade Discount

Series of Discounts
Steps in Calculating a Series of Discounts
4. NP2 = NP1 – TD2

where
NP2 = net price after the second discount

5. Continue the process until the last net price is computed.

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 Trade Discount

Series of Discounts
Steps in Calculating a Series of Discounts
5. Total TD = LP – NPn

where
NPn = net price after the last discount

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 Trade Discount

Series of Discounts
Alternative method:

NP = LP(1 – DR1)(1 – DR2) …(1 – DRn)

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 Series of Discounts

1. A desktop computer lists at ₱22,250. The dealer is offering a series

discounts of 30%, 20%, and 5%. Compute for the net price and total trade
discount.

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the net price (NP) and total trade
discount (TD).

32
 Series of Discounts

Step 2: Identify the given in the problem.

The list price (LP) and series of discount rates (DR1, DR2, and
DR3) are given.
LP = ₱22,250.00
DR1 = 30%
DR2 = 20%
DR3 = 5%

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 Series of Discounts

Step 3: Write the working equations.

TD1 = (LP)(DR1)
NP1 = LP – TD1
TD2 = (NP1 )(DR2)
NP2 = NP1 – TD2
TD3 = (NP2)(DR3)
NP3 = NP2 – TD3
TTD = LP – TD3
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 Series of Discounts

Step 4: Substitute the given values.

TD1 = (LP)(DR1) = (22,250)(0.30) = 6,675
NP1 = LP – TD1 = 22,250 –6,675 = 15,575
TD2 = (NP1)(DR2) = (15,575)(0.20) = 3,115
NP2 = NP1 – TD2= 15,575 – 3,115 = 12,460

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 Series of Discounts

Continuation...
TD3 = (NP2)(DR3) = (12,460)(0.05) = 623
NP3 = NP2 – TD3 = 12,460 – 623 = 11,837
TTD= LP – NP3= 22,250 – 11,837 = 10,413

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 Series of Discounts

Step 5: Find the answer.

The net price is ₱11,837.00.

The total trade discount is ₱10,413.00.

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 Series of Discounts

2. A headset listed at ₱5,500 was on sale offering a discount series of 35 %

and 15 %. How much will you pay for the headset?

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the net price (NP).

38
 Series of Discounts

Step 2: Identify the given in the problem.

The list price (LP) and discount rates (DR1 and DR2) are given.
LP = ₱5,500.00
DR1 = 35%
DR2 = 15%

Step 3: Write the working equation.

NP = LP(1–DR1)(1–DR2)

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 Series of Discounts

Step 4: Substitute the given values.

NP = LP(DR1)(DR2) = (5,500)(1–0.35)(1–0.15) = 3,038.75

Step 5: Find the answer.

You will pay ₱3,038.75 for the headset.

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 Trade Discount

Single Discount Equivalent

(DER) = 1 – (1 –DR1)(1 – DR1)...(1 – DRlast)

DER = Equivalent series discount rate

DR1 = First discount rate
DRlast = Last discount rate

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 Single Discount Rate Equivalent of Series of Discounts

1. Find the single discount equivalent rate of a series of discounts of 30%,

25%, and 10%.

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the single discount equivalent rate
(DER).

42
 Single Discount Rate Equivalent of Series of Discounts

Step 2: Identify the given in the problem.

The series of discounts (DR1, DR2 and DR3) are given.
DR1 = 30%
DR2 = 25%
DR3 = 10%

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 Single Discount Rate Equivalent of Series of Discounts

Step 3: Write the working equation.

DER = 1 – (1 – DR1)(1 – DR2)(1 – DR3)

Step 4: Substitute the given values.

DER = 1 – (1 – DR1)(1 – DR2)(1 – DR3)
= 1 – (1 – 0.30)(1 – 0.25)(1 – 0.10) = 0.5275

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 Single Discount Rate Equivalent of Series of Discounts

Step 5: Find the answer.

The single discount equivalent rate is 53.75%.

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 Single Discount Rate Equivalent of Series of Discounts

2. Find the single discount equivalent rate of 30%, 25%, and 10%Find the
single discount equivalent rate and the net price of a bookshelf listed at
₱7,855 with a series of discount rates of 25%, 12%, and 8%.

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the single discount equivalent rate
(DER) and net price (NP).
46
 Single Discount Rate Equivalent of Series of Discounts

Step 2: Identify the given in the problem.

The list price (LP) and the discount rates (DR1, DR2, and DR3) are
given.
LP = ₱7,855.00
DR1 = 25%
DR2 = 12%
DR3 = 8%

47
 Single Discount Rate Equivalent of Series of Discounts

Step 3: Write the working equation.

DER = 1 – (1 – DR1)(1 – DR2)(1 – DR3)
NP = LP(1 – DER)

Step 4: Substitute the given values.

DER = 1 – (1 – DR1)(1 – DR2)(1 – DR3)= 1 – (1 – 0.25)(1 – 0.12)(1 – 0.08) =
0.3928
NP = LP(1 – DER) = 7,855(1 – 0.3928) = 4,769.556 = 4,769.56

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 Single Discount Rate Equivalent of Series of Discounts

Step 5: Find the answer.

The single discount equivalent rate is 39.28%.
The net price is ₱4,769.56.

49
 A store offered a 25% discount on an imported backpack. It was sold
1 for ₱1,240. Compute the original price of the backpack.

Answer area

50
 Cash Discounts
Cash discounts are special deductions from the net price to encourage
buyers to pay promptly.

CD = (NP)(RC)
CD = cash discount
NP = net price
RC = rate of cash discount

51
 Cash Discounts

Terms of Cash Discounts

2/10, n/30 (Two ten, n thirty)

A cash discount of 2% is given for payment within ten days from the date
of invoice, and the net amount is due 30 days from the date of invoice.

52
 Cash Discounts

Terms of Cash Discounts

3/10, 2/15, n/60 (Three ten, two fifteen, n sixty)

A cash discount of 3% is given for payment within ten days from the date
of invoice or a cash discount of 2% is given for payment within 15 days
from the date of invoice, or the net amount is due 60 days from the date of
invoice.

53
 Cash Discount

1. On November 15, 2021, you paid an invoice of ₱12,500 net price which
shows the terms 3/10, 2/30, n/60 with an invoice date of October 30, 2021.
How much did you actually pay?

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the total amount paid (C).

54
 Cash Discount

Step 2: Identify the given in the problem.

The net price (NP), payment date, invoice date and the terms are
given.
Net price (NP) = ₱12,500
Cash discount terms = 3/10, 2/30, n/60
Invoice date = October 30, 2021
Payment date = November 15, 2021

55
 Cash Discount

Step 3: Write the working equation.

Number of days = Payment date - Invoice date
CD= Cash Discount
CD = (NP)(RC)
C = NP – CD

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 Cash Discount

Step 4: Substitute the given values.

Count the days from October 30, 2021 to November 15, 2021
16 days from the date of invoice => 2/30 term can be applied

CD = NP
RC = (12,500)(0.02) = 250
C = NP – CD = 12,500 – 250 = 12,250

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 Cash Discount

Step 5: Find the answer.

The actual payment made is ₱12,250.00.

58
 Cash Discount

2. An invoice dated December 11, 2021 shows the terms 2/10, n/30. When
will be the last day of cash discount and the last day before implementing
late charges.

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the last day of discount and last day
without penalty.
59
 Cash Discount

Step 2: Identify the given in the problem.

The invoice date and the terms are given.
Cash discount terms = 2/10, n/30
Invoice date = December 11, 2021

Step 3: Write the working equation.

Last day with discount = Invoice date + 10 days
Last day without penalty = Invoice date + 30 days
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 Cash Discount

Step 4: Substitute the given values.

Last day with discount = Invoice date + 10 days = December 11 + 10
days
= December 21, 2021

Last day without penalty = Invoice date + 30 days =December 11 + 30

days
=January 10, 2022

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 Cash Discount

Step 5: Find the answer.

The last day with cash discount is December 21, 2021.
The last day without late charges is January 10, 2022.

62
 Problems Involving Discounts

● businesses have to control the

costs
○ lower the selling price
○ maximize profits
● they do this by taking advantage
of the discounts offered by
suppliers

63
Problems Involving Discounts

● purchasing decisions rely on

trade discounts and cash
discounts, or “the mathematics
of buying”

64
 Problems involving Trade Discounts and Cash Discounts

1. A newly opened appliance store has desktop fans with a list price of
₱2,395 with a series of 10% and 5% discounts. How much is the total
discount rate and net price?

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the total discount rate (DER) and net
price (NP).

65
 Problems involving Trade Discounts and Cash Discounts

Step 2: Identify the given in the problem.

The list price (LP) and the discount rates (DR1 and DR2) are given.
LP = ₱2,395.00
DR1 = 10%
DR2 = 5%

66
 Problems involving Trade Discounts and Cash Discounts

Step 3: Write the working equation.

DER = 1 – (1 – DR1)(1 – DR2)
NP = LP(1 – DER)

Step 4: Substitute the given values.

DER = 1 – (1 – DR1)(1 – DR2) = 1 – (1 – 0.10)(1 – 0.05)= 0.145
NP = LP(1 – DER) = 2,395(1 – 0.145) = 2,047.725

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 Problems involving Trade Discounts and Cash Discounts

Step 5: Find the answer.

The total discount is 14.5%.
The net price is ₱2,047.73.

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 Problems involving Trade Discounts and Cash Discounts

2. An invoice dated November 5, 2021 shows the term 2/10, n/30. When
will be the last day of cash discount and the last day before implementing
late charges.

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the last day of discount and last day
without penalty.

69
 Problems involving Trade Discounts and Cash Discounts

Step 2: Identify the given in the problem.

The invoice date and the terms are given.
Cash discount terms = 2/10, n/30
Invoice date = November 5, 2021

Step 3: Write the working equation.

Last day with discount = Invoice date + 10 days
Last day without penalty = Invoice date + 30 days
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 Problems involving Trade Discounts and Cash Discounts

Step 4: Substitute the given values.

Last day with discount = Invoice date + 10 days = November 5 + 10
days
= November 15, 2021

Last day without penalty = Invoice date + 30 days = November 5 + 30

days
=December 5, 2021

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 Problems involving Trade Discounts and Cash Discounts

Step 5: Find the answer.

The last day with a cash discount is November 15, 2021.

The last day without late charges is December 5, 2021.

72
 An invoice dated March 1, 2021 shows the terms 3/5, 2/10, n/30.
2 When will be the last day of cash discount and the last day before
implementing late charges.

Answer area

73
 Discount And Competition

Big manufacturing companies would spend a lot to entice retailers to

support their brands. It is common that manufacturers do not sell directly to
the end consumers. Rather, they have distributors who retail their brands to
the end consumers.

The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion
James M. Lattin, “The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion,”
https://www.gsb.stanford.edu/faculty-research/working-papers/impact-store-brands-manufacturer-trade-deals-retail-price-promotion
. 74
 Discount And Competition

The study will analyze if there is any effect with what a manufacturer and a
retailer will do in terms of their promotional pricing activities.

A manufacturer will sell its own Brand X at its regular price. In contrast, a
retailer will sell Brand X at a promotional price as well as its own store
product, Brand Y.

The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion
James M. Lattin, “The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion,”
https://www.gsb.stanford.edu/faculty-research/working-papers/impact-store-brands-manufacturer-trade-deals-retail-price-promotion
. 75
 Discount And Competition

It was found out that a customer’s loyalty to the brand can be a factor when
buying commodities. Brand X is sold at a promotional price at the retailer’s
store while Brand Y is sold at a regular price but still cheaper. Because of
the consumer’s behavior of being loyal to Brand X, there were many who
bought several pieces.

The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion
James M. Lattin, “The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion,”
https://www.gsb.stanford.edu/faculty-research/working-papers/impact-store-brands-manufacturer-trade-deals-retail-price-promotion
. 76
 Discount And Competition

Though the items were bought at the retailers’ store, the sold products were
still Brand X. The thought of getting a discount from their favorite brand
enticed consumers to buy more.

The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion
James M. Lattin, “The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion,”
https://www.gsb.stanford.edu/faculty-research/working-papers/impact-store-brands-manufacturer-trade-deals-retail-price-promotion
. 77
● Businesses have to work hard to keep costs low. If costs are low, businesses could
provide discounts to consumers and maximize profits. Thus, purchasing decisions
consider the discounts offered by manufacturers and wholesalers.

78
● A trade discount is the list-price deduction given by wholesalers and
manufacturers to the retailers. Trade discounts can be a single discount or a series
of discounts.
● Cash discounts are special deductions from the net price to encourage buyers to
pay promptly. It helps manufacturers and wholesalers avoid borrowing money to
continue their operations.

79
● Trade discounts and cash discounts are important considerations in purchasing
decisions. It is for this reason that these are also considered the mathematics of
buying.

80
Choose the correct answer from the following options:

net price or invoice price

1. It is computed by dividing the trade
discount by the list price.
overdue charges

Answer area
rate of discount

series of discount

total trade discount

81
Choose the correct answer from the following options:

net price or invoice price

2. It is the multiple discounts given to
attract buyers.
overdue charges

Answer area
rate of discount

series of discount

total trade discount

82
Choose the correct answer from the following options:

3. It is the difference between the list price net price or invoice price
and the last net price in a series of
discounts. overdue charges

Answer area
rate of discount

series of discount

total trade discount

83
Choose the correct answer from the following options:

net price or invoice price

4. It occurs when a buyer cannot pay
within the terms of payment.
overdue charges

Answer area
rate of discount

series of discount

total trade discount

84
Choose the correct answer from the following options:

5. It is the amount paid after the discount/s net price or invoice price
have been applied subtracted from the
list price. overdue charges

Answer area
rate of discount

series of discount

total trade discount

85
Answer the following questions.

1. A company received an invoice for a copying machine amounting to

₱42,150.00 dated September 13, 2021 with the terms 5/10, 2/30,
n/60.
a. Compute the total amount paid if it was paid on October 31,
2021.
b. Compute the total amount paid if it was paid on October 14,
2021.
c. Do you think there’s a difference between the amount of
payment if it was paid on October 14 or 31, 2021?

86
Answer the following questions.

Answer area

87
Answer the following questions.

2. A garments company received an invoice for sewing machines

amounting to ₱140,000.00 dated August 5, 2021 with the terms 5/10,
2/20, n/60.
a. When is the last day of the cash discount?
b. How much is the amount due if the invoice is paid on the last
day of the discount?

88
Answer the following questions.

Answer area

89