Lecture 4: Discounts & CVP Analysis

Question 1

Different Discounts (7)

Answer 1

Quantity Discount (buy 1 get 1)
Loyalty Discount
Sale Discount
Cash Discount (encourages early payment)
Seasonal Discount
Single Trade Discount (eg bulk purchase)
Discount Series: a chain of discounts that businesses offer that require clients to meet different conditions at different time, based on a one-at-a-time approach ( eg 20% early bird/10% minimum purchase/5% if paid in 30 days)

Question 2

MSRP

Answer 2

Manufacturer’s Suggested Retail Price

Question 3

Trade Discount Formula (amount off)

Answer 3

Trade Discount (TD)= (List Price (LP)) (Trade Discount Rate (R))

Net Price (NP)= List Price (LP) - Trade Discount (TD)

Question 4

Terms of Payment (Invoice)

Answer 4

-Invoice lists pertinent facts about the transaction including ITEMS SOLD, PRICE, TRADE DISCOUNT, CONDITIONS OF DELIVERY & TERMS OF PAYMENT
-Payment period usually begins on the date of the invoice (next day is day 1)

Question 5

Discount & Credit Periods Example

Answer 5

2/10, n/30

Question 6

Markdown Equation

Answer 6

Markdown = [(original selling price-reduced price)/original selling price] x 100

Question 7

Average Fixed Cost Equation

Answer 7

AFC= Total Fixed Cost (TFC)/Q (quantity)

Question 8

Variable Cost Equation
(Identifies variable cost per unit)

Answer 8

Variable Cost = Cost per unit x Total Number of Units Produced

Question 9

Total Costs Equation

Answer 9

Total Cost = total Fixed cost + total variable cost per unit

Question 10

Cost-Volume Profit Analysis Formula

Answer 10

Breakeven Sales Volume = Fixed Costs/Contribution Margin
* Contribution Margin = Sales - Variable Costs

Question 11

Rate of markup based on cost equation

Answer 11

Markup/cost x 100

Question 12

Rate of markup based on selling price 

Answer 12

Markup/selling price x 100