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 break-even 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 interest-free 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.
  • End-of-Month 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.
  • Receipt-of-Goods 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.


  • Symbols Used

    • [latex]BE[/latex] = break-even 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 (1-d)}[/latex]
    • Discount Amount: [latex]\displaystyle{D=d \times L}[/latex]
    • Discount Amount: [latex]\displaystyle{D=L-N}[/latex]
    • Multiple Discounts:  [latex]\displaystyle{N=L \times (1-d_1) \times (1-d_2) \times \cdots \times (1-d_n)}[/latex]
    • Amount Credited:  [latex]\displaystyle{\mbox{Amount Credited}=\frac{\mbox{Amount Paid}{1-d}}[/latex]
    • Amount Paid:  [latex]\displaystyle{\mbox{Amount Paid}=\mbox{Amount Credited} \times (1-d)}[/latex]
    • Single Equivalent Discount:  [latex]\displaystyle{d_e=1-\left[(1-d_1)\times (1-d_2) \times \cdots \times (1-d_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}-C-E}[/latex]
    • Reduced Profit:  [latex]\displaystyle{P_{red}=P-D}[/latex]
    • Reduced Selling Price:  [latex]\displaystyle{S_{red}=S \times (1-d)}[/latex]
    • Markdown Amount:  [latex]\displaystyle{D=d\times S}[/latex]
    • Markdown Amount:  [latex]\displaystyle{D=S-S_{red}}[/latex]
    • Rate of Markdown:  [latex]\displaystyle{d =\frac{D}{S} \times 100\%}[/latex]


Chapter 6 & 7 Summary” from Business Math: A Step-by-Step Handbook (2021B) by J. Olivier and Lyryx Learning Inc. through a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License unless otherwise noted.


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