Question

Boeing Truck Company received an invoice showing 8 tires at $110 each, 12 tires at $160 each, and 15 tires at $180 each. Shipping terms are FOB shipping point. Freight is $400; trade discount is 10/5; and a cash discount of 2/10, n/30 is offered. Assuming Boeing paid within the discount period, what did Boeing pay?

Answer 1

The cost of 8 tires at $110 each is

= $8 * $110

= $880

The cost of 12 tires at $160 each is

$12 * $160

= $1,920

The cost of 15 tires at $180 each is

= $15 * $180

= $2,700

Therefore, the total cost is

= $880 + $1,920 + $2,700

= $5,500

So list price is $5,500

Trade discount is 10/5

First we find the complement of trade discount and convert each percent to decimal

So it becomes:

100% - 10% = 90%

= 90/100

= 0.90

and again

100% - 5% = 95%

= 95 / 100

= 0.95

B company paid within the discount period, so 2% discount possible

First of all, it is necessary to obtain complement of discount and convert each percent to decimal

So it becomes

100% - 2% = 98%

= 98/100

= 0.98

The net price equivalent rate is obtained by multiplying the complement of discounts.

Net price equivalent rate is

= 0.90 * 0.95 * 0.98

= 0.8379

Net price = List price * Net price equivalent rate

So, Net price = $5,500 * 0.8379

= $4,608.45

Freight is $400

So Company B pay is

= $4,608.45 + $400

= $5,008.45