Edwin purchases a machine on 8 September 2023 with a list price of RM8,400. The trade discount
given is 10% while the cash discount terms are 4/15, n/30. He then sells the machine and makes a
gross profit of 25% of the selling price. The operating expenses are 4% of the selling price. Find
the:
i. amount paid by Edwin on 22 September 2023. (4 marks)
ii. selling price (4 marks)
iii. breakeven price (4 marks)
iv. maximum markdown percent that could be given without incurring any loss. (4 marks)
v. net profit obtained by Edwin
i. Amount paid by Edwin on 22 September 2023:
List price = RM8,400
Trade discount = 10% = 0.10
Cash discount = 4%
Trade discount amount = RM8,400 x 0.10 = RM840
Net amount after trade discount = RM8,400 - RM840 = RM7,560
Cash discount = 4% = 0.04
Cash discount amount = RM7,560 x 0.04 = RM302.40
Amount paid by Edwin on 22 September 2023 = RM7,560 - RM302.40 = RM7,257.60
ii. Selling price:
Gross profit = 25%
Operating expenses = 4%
Total expenses = 25% + 4% = 29%
Selling price = Cost/(1 - Total expenses) = RM7,560 / (1 - 0.29) = RM10,633.80
iii. Breakeven price:
Breakeven price = Cost + Operating expenses = RM7,560 + (4% of RM10,633.80) = RM7,560 + RM425.352 = RM7,985.35
iv. Maximum markdown percent that could be given without incurring any loss:
Let x be the markdown percent.
Selling price after markdown = RM7,560 / (1 - 0.29 - x)
Cost = RM7,560
Equating the selling price and cost:
RM7,560 / (1 - 0.29 - x) = RM7,560
1/(1 - 0.29 - x) = 1
1 - 0.29 - x = 1
x = 0.71
Therefore, the maximum markdown percent that could be given without incurring any loss is 71%.
v. Net profit obtained by Edwin:
Net profit = Selling price - Cost - Operating expenses
Net profit = RM10,633.80 - RM7,560 - (4% of RM10,633.80)
Net profit = RM3,073.80 - RM425.352
Net profit = RM2,648.448