Mel's Furniture received an invoice dated September 27 for five bedroom sets at $3,000 each. The invoice indicated a trade discount of 5/8/3. The seller of the furniture prepaid the freight of $200. Terms were 2/10 EOM.Assuming Mel pays on November 2, what amount would be paid?(include the freight cost.)
To calculate the amount Mel would pay, we need to consider the cost of the bedroom sets, the trade discount, the prepaid freight, and the terms of payment.
First, let's determine the cost of the bedroom sets:
Number of bedroom sets = 5
Cost per bedroom set = $3,000
Total cost of bedroom sets = 5 * $3,000 = $15,000
Next, let's calculate the trade discount:
The trade discount is given as 5/8/3, which means 5% is deducted for payment made within the first month, then an additional 8% is deducted within the first 10 days of the following month, and finally, an additional 3% is deducted for prepaid freight.
To calculate the trade discount, we use the formula:
Trade Discount = (List Price) * (Trade Discount Rate 1) * (Trade Discount Rate 2) * (Trade Discount Rate 3)
where,
List Price = $15,000
Trade Discount Rate 1 = 1 - (5/100)
Trade Discount Rate 2 = 1 - (8/100)
Trade Discount Rate 3 = 1 - (3/100)
Trade Discount = $15,000 * (1 - (5/100)) * (1 - (8/100)) * (1 - (3/100))
Now let's calculate the prepaid freight:
Prepaid Freight = $200
Now, let's consider the terms of payment:
Terms = 2/10 EOM, which means Mel will receive a 2% discount if payment is made within 10 days of the end of the month. In this case, Mel pays on November 2, so the discount is applicable.
Finally, let's calculate the amount Mel would pay:
Amount Payable = (Total Cost of bedroom sets - Trade Discount - Prepaid Freight) * (1 - Terms Discount Rate)
= ($15,000 - Trade Discount - $200) * (1 - (2/100))
Now, we can calculate the individual components:
Trade Discount = $15,000 * (1 - (5/100)) * (1 - (8/100)) * (1 - (3/100))
Terms Discount Rate = 1 - (2/100)
Plug in the values and solve for the amount Mel would pay.