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January 28, 2015

Posted by **April** on Monday, February 28, 2011 at 2:59pm.

Misuse and abuse of trade discounts infringe on fair trade laws and can cost companies stiff fines and legal fees. One way to avoid misuse is to estblish the same discount for everyone and give rebates based solely on volume. Image Manufacturing, In., uses this policy for equipment sales to companies that develop photographs. For example, one developing machine component, a special hinge, sells for about $3 to a company buying 15,000 pieces per month. In an effort to run more cost-efficient large jobs and capture market share, Image Manufacturing will give an incentive for higher volume. It offers a 5% rebate on orders of 20,000 pieces per month. or 17-18 cents apiece rebate for orders of at least 22,000 pieces per month. The increased volume needed for rebate is determined by market research that tells Image Manufacturing factors such as the volume a customer is capable of ordering per month, the volume and cost of the same part a customer currently buys from other suppliers. The rebate amount is determined by Image Manufacturing's profit margin and the company's ability to acquire sufficient raw materials to produce large volumes without raising production costs. In some industries this is called a bill-back because the buyer receives credit toward the next order rather than a rebate check.

1. Suppose Photo Magic orders 15,000 hinges per month form Image Manufacturing at $3 each, which is about half of what they buy each month from other suppliers. If they move 5,000 pieces per month from another company to Image Manufacturing, what will be their rebate on the total order? What will be the discounted cost per price?

20,000($3) = $60,000

With the 5% discount = ($3)(.95)=$2.85/piece

20,000(2.85)=$57,000

$60,000-$57,000 = $3,000

Answers:

REBATE = $3,000 & Cost/Piece= $2.85

2. If Photo magic increases its order to 22,000 pieces per month and negotiates an 18 cent-per-piece trade discount, what will be the rebate? What is the percent of the discount? How did you get the answer?

22,000($3)=$66,000 22,000-15,000=7,000

7,000(.18)=$1260 $66,000-$1260=$64,740

64,740/66,000=.98 .98/100=9.8%

Answers: Rebate=$1260 & Discount 9.8%

3. If Photo Magic also receives a 1/2% cash discount (10 days, net 30), calculate the cash discount and total rebate on a 30,000-piece-per-month order, and then find the net price. The cash discount of 1/2% is allowed to be taken on total purchase before the rebate is applied. How did you calculate your answer?

$3(.95)=$2.85 $2.85(30,000)=$85,500

(.90)$85,500=$76,950 85,500-76,950=$8,550

Answer: Rebate=$8,550 Net Price=$76,950

4. Another company currently orders about 6,000 hinges per month from Image Manufacturing at $3 each. Image Manufacturing's marketing manager believes this company is capable of expanding its business to 8,000 pieces per month and recommends a rebate of 17 cents per piece if they so. Rounded to the nearest tenth, what is the rebate percentage? How did you calculate the formulas? Do you think this trade discount violates fair trade laws? Why and why not?

8,000(3)=24,000 8,000(.17)=$1360

$24,000-1360=$22,640 $1360/22,640=.06

.06(100)=6.0%

Answer: Rebate=$1360 Rebate Percentage=6.0%

- Math/ Trade & Cash discounts -
**Helper**, Monday, February 28, 2011 at 3:16pmWhat exactly is your question?

You show work and answers for all 4 questions.

Are your answers correct?

Are you asking for someone to check your work because you don't know if the answers you have listed are correct?

You need to ask specific questions.

- Math/ Trade & Cash discounts -
**April**, Monday, February 28, 2011 at 3:37pmThanks for the feedback. I just want someone to be able to check my answers to see if they are correct.

- Math/ Trade & Cash discounts -
**Helper**, Monday, February 28, 2011 at 5:15pm1. Looks right.

2. I'm not sure why you subtracted the $7000. first. The problem says 0.18 on orders of at least 22,000 units?

22,000 * 3.00 = 66,000

22,000 * 2.82 = 62,040

66,000 - 62,040 = 3,960 rebate

3960/66000 = 0.06 * 100 = 6% discount

3. 30,000 * 3 = 90,000

30,000 * 2.85 = 85,500

90,000 - 85,500 = 4500 rebate

Cash discount = 1/2% = 0.5% = 0.005

90,000 * 0.005 = 450 cash discount

90,000 - 4500 rebate - 450 cash discount = 85,050 net cost

4. My answer is based on 8,000 units (not compared to cost based on 6000 increased to 8000 units).

8000 * 3.00 = 24,000

8000 * 2.83 = 22,640

24000 - 22640 = 1360 rebate

1360/24000 = 0.0567 * 100 = 5.67%

- Math/ Trade & Cash discounts -
**April**, Monday, February 28, 2011 at 5:46pmThank you! Why do I feel so off? I feel like I knew what I was doing, then it all went away? Thank you for teaching me!

- Math/ Trade & Cash discounts -
**Helper**, Monday, February 28, 2011 at 7:05pmYou're welcome!

I hope I'm right. :)

The problem is so wordy, so at first, I wasn't sure if more was expected.

Good luck!

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