You place an order for 300 units of inventory at a unit price of $135. The suppl

Question

You place an order for 300 units of inventory at a unit price of $135. The supplier offers terms of 3/10, net 60.

How long do you have to pay before the account is overdue?

If you take the full period, how much should you remit?

What is the discount being offered?

How quickly must you pay to get the discount?

If you do take the discount, how much should you remit?

If you don’t take the discount, how much interest are you paying implicitly?

How many days’ credit are you receiving?

You place an order for 300 units of inventory at a unit price of $135. The supplier offers terms of 3/10, net 60.

Explanation / Answer

The term 3/10, net 60 means that a 3% discount will be offered on the amount due if the payment is made within 10 days, else the full amount is payable within 60 days.

a-1)

We have 60 days to pay before the account is overdue.

a-2)

If full period credit is taken, amount to be remitted = 300 units x $135 = $40,500

b-1)

Discount is 3% of the amount payable if paid within 10 days = $40,500 x 3% = $1,215

b-2)

The mount should be paid within 10 days of purchase to avail the discount.

b-3)

If discount is taken, amount to be remitted = $40,500 - $1,215 = $39,285

c-1)

Assuming 360 days in a year

Interest paid implicitly = ( Discount / Total amount ) / 60 x 360 = ($1,215 / $40,500) / 60 x 360 = 18%

c-2)

60 days credit is being received.

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