1.7 Chapter Summary
Key Concepts
 1.1 Discounts
 The relationship between distribution and pricing.
 Some of the discounts available to businesses and consumers.
 How to calculate the net price when only one discount is involved.
 How to calculate the net price when multiple discounts are involved.
 Converting multiple discounts into single discounts.
 1.2 Invoices, Terms of Payments, and Cash Discounts
 How invoicing works.
 Understanding invoice terms and invoice dating.
 The calculations involved when a full payment amount is made.
 The calculations involved when a partial payment amount is made.
 1.3 Markup
 The three components that compose a selling price.
 Calculating the markup in dollars and the relationship to pricing components.
 Calculating the markup as a percentage under two different approaches.
 Determining the price point where all costs are paid but no profits are earned—the breakeven point.
 1.4 Markdown
 How to take a regular selling price and make it into a sale price by applying markdowns.
 1.5 Working with Discounts, Markup, and Markdown
 Calculating the reduced profit.
 Combining discounts, markup, and markdown into complete merchandising situations.
Glossary of Terms
 Amount Credited. The amount deducted from the invoice balance as a result of the payment.
 Amount Paid. The actual payment amount made that must be converted into its value toward the invoice total.
 Cash Discount. A percentage of the balance owing on an invoice that can be deducted for payment received either in full or in part during the discount period.
 Cost. An outlay of money required to produce, acquire, or maintain a product, which includes both physical goods and services.
 Credit Period. The number of interestfree days from the date of commencement before full payment of the invoice is required.
 Date of Commencement. The first day from which the invoice terms extend forward in time and from which all due dates are established.
 Discount. A reduction in the price of a product.
 Discount Period. The number of days from the date of commencement for which a cash discount is offered.
 EndofMonth Invoice Dating. A term of payment where the date of commencement is the last day of the same month as indicated by the invoice date.
 Expenses. A business’s financial outlays incurred in the selling of a product.
 List Price. A price for a product that has been published or advertised in some way.
 Loyalty Discount. A discount given from a seller to a purchaser for repeat business.
 Manufacturer’s Suggested Retail Price (MSRP). A recommended product retail price that a manufacturer sets for a retailer based on market research.
 Markdown. A reduction from the regular selling price of a product resulting in a new lower sale price.
 Markup. The process of taking a product’s cost and increasing it by a certain amount to arrive at a selling price.
 Markup Amount. The dollar amount of the expenses and profit combined together into a single number. It represents the difference between the price and cost in dollars.
 Net Price. The price of the product after a discount is removed from the list price.
 Ordinary Invoice Dating. A term of payment where the date of commencement is the same date as the invoice date.
 Profit. The amount of money that remains after a business pays all of its costs and expenses.
 Quantity Discount. A discount for purchasing larger quantities of a certain product.
 Rate of Markup on Cost. The markup dollars expressed as a rate using cost as the base.
 ReceiptofGoods Invoice Dating. A term of payment where the date of commencement is the day on which the customer physically receives the goods.
 Rate of Markup on Selling Price. The markup dollars expressed as a rate using the regular selling price as the base.
 Reduced Profit. The reduced profit is the amount of profit earned when selling an item at a reduced selling price.
 Reduced Selling Price or Sale Price. A price for a product after a markdown that is lower than its regular selling price.
 Sale Discount. A temporary discount lowering the price from a product’s regular selling price.
 Seasonal Discount. A discount offered to consumers and businesses for purchasing products out of season.
 Single Equivalent Discount. A single discount rate that is equal to a series of multiple rate discounts.
 Trade Discount. A discount offered to businesses only based on the type of business and its location in the distribution system.
Formulas

Symbols Used
 [latex]BE[/latex] = breakeven price
 [latex]C[/latex] = cost
 [latex]d[/latex] = discount rate or rate of markdown
 [latex]d_1, d_2, \ldots, d_n[/latex] = multiple discount rates, where the subscript represents each discount up to a count of [latex]n[/latex] discounts.
 [latex]D[/latex] = discount amount or amount of markdown
 [latex]d_e[/latex] = single equivalent discount rate
 [latex]E[/latex] = expenses
 [latex]L[/latex] = list price
 [latex]M[/latex] = amount of markup
 [latex]N[/latex] = net price
 [latex]P[/latex] = profit
 [latex]P_{red}[/latex] = reduced profit
 [latex]ROM_C[/latex] = rate of markup on cost
 [latex]ROM_S[/latex] = rate of markup on selling price
 [latex]S[/latex] = regular selling price
 [latex]S_{red}[/latex] = reduced selling price or sale price

Formulas Used
 Single Discount: [latex]\displaystyle{N=L \times (1d)}[/latex]
 Discount Amount: [latex]\displaystyle{D=d \times L}[/latex]
 Discount Amount: [latex]\displaystyle{D=LN}[/latex]
 Multiple Discounts: [latex]\displaystyle{N=L \times (1d_1) \times (1d_2) \times \cdots \times (1d_n)}[/latex]
 Amount Credited: [latex]\displaystyle{\mbox{Amount Credited}=\frac{\mbox{Amount Paid}{1d}}[/latex]
 Amount Paid: [latex]\displaystyle{\mbox{Amount Paid}=\mbox{Amount Credited} \times (1d)}[/latex]
 Single Equivalent Discount: [latex]\displaystyle{d_e=1\left[(1d_1)\times (1d_2) \times \cdots \times (1d_n)\right]}[/latex]
 Selling Price: [latex]\displaystyle{S=C+E+P}[/latex]
 Markup Amount: [latex]\displaystyle{M=E+P}[/latex]
 Selling Price using Markup Amount: [latex]\displaystyle{S=C+M}[/latex]
 Rate of Markup on Cost: [latex]\displaystyle{ROM_C=\frac{M}{C} \times 100\%}[/latex]
 Rate of Markup on Selling Price: [latex]\displaystyle{ROM_S=\frac{M}{S} \times 100\%}[/latex]
 Reduced Profit: [latex]\displaystyle{P_{red}=S_{red}CE}[/latex]
 Reduced Profit: [latex]\displaystyle{P_{red}=PD}[/latex]
 Reduced Selling Price: [latex]\displaystyle{S_{red}=S \times (1d)}[/latex]
 Markdown Amount: [latex]\displaystyle{D=d\times S}[/latex]
 Markdown Amount: [latex]\displaystyle{D=SS_{red}}[/latex]
 Rate of Markdown: [latex]\displaystyle{d =\frac{D}{S} \times 100\%}[/latex]
Attribution
“Chapter 6 & 7 Summary” from Business Math: A StepbyStep Handbook (2021B) by J. Olivier and Lyryx Learning Inc. through a Creative Commons AttributionNonCommercialShareAlike 4.0 International License unless otherwise noted.