Morgan Company received from Lee Company an invoice dated Sep 27. Terms were 2/10EOM. List price on the invoice was 5,000(freight not included) Morgan receives a 9/7 chain discount. Fright charges are Morgans responibility but lee agreed to prepay $ 150 freight charge.What does Morgan pay lee
To calculate the amount Morgan Company pays Lee Company, we need to consider the terms, discounts, and freight charges. Let's break down the calculation step by step:
1. Calculate the chain discount:
- Morgan receives a 9/7 chain discount.
- The chain discount formula is (1 - Discount 1) × (1 - Discount 2).
- The discount 1 is 9% (or 0.09) and discount 2 is 7% (or 0.07).
- Applying the formula: (1 - 0.09) × (1 - 0.07) = 0.91 × 0.93 ≈ 0.8463 (rounded to four decimal places).
- Therefore, Morgan Company will receive an 84.63% discount on the list price.
2. Calculate the net price after the chain discount:
- Multiply the list price by the chain discount percentage: $5,000 × 0.8463 ≈ $4,231.50 (rounded to two decimal places).
- After the chain discount, the net price is approximately $4,231.50.
3. Calculate the amount Morgan Company needs to pay Lee Company:
- Since the invoice terms are 2/10EOM, Morgan can take a 2% discount if they pay within the first ten days of the EOM (end of the month).
- Subtract the discount from the net price: $4,231.50 - (0.02 × $4,231.50) ≈ $4,143.87 (rounded to two decimal places).
- After deducting the early payment discount, Morgan needs to pay approximately $4,143.87 to Lee Company.
4. Take into account the prepaid freight charge:
- Lee Company prepaid $150 in freight charges.
- Deduct the freight charge from the amount to be paid: $4,143.87 - $150 = $3,993.87.
Therefore, Morgan Company will pay Lee Company approximately $3,993.87 after considering the chain discount, early payment discount, and prepaid freight charge.