Bernie’s Bike Shop receives the following trade discounts: 35/25/15. The vendor’

Question

Bernie’s Bike Shop receives the following trade discounts: 35/25/15. The vendor’s price list indicates that 35 percent off list price is for purchasing bikes in quantities of 100 or more, 25 percent off list price is for assembling the bikes for customers, and 15 percent is for sales promotion and local advertising.

a. If the manufacturer’s list price is $470, what should Bernie pay for each bike if he orders 110 bikes at a time, assembles the bikes, and displays and advertises them?

b. What is Bernie’s single equivalent discount rate?

c. How much will Bernie pay the manufacturer for each bike if he orders 10 bikes at a time and takes advantage of the other discounts?

In Exercise 13, Bernie is given terms of 4/15, n/30, and he pays by day 15.

a. How much will he pay the manufacturer for the order of 110 bikes?

b. For how much will the manufacturer credit Bernie’s account?

c. If Bernie has a cash flow problem and waits until day 30 to pay the manufacturer, what is his effective cost of financing for the year?

Explanation / Answer

a. If Price of the bike is $470, Bernie will pay purchasing Bike 100 or more Price Discount Rate Discount Amount Price After Discount Discount if 100 or more      470.00 35%      164.50      305.50 Discount for Assembeling Bikes for Customers      305.50 25%         76.38      229.13 Sales Promotion & Advertising      229.13 15%         34.37      194.76 Bernie Will Pay 194.76 for each bike b. List Price      470.00 Pays      194.76 Total Discount      275.24 Single Equivalent Discount Rate 58.56% i.e. 275.24/475 c. If Price of the bike is $470, Bernie will pay purchasing Bike 10 at a time Price Discount Rate Discount Amount Price After Discount Discount if 10      470.00 0%                -        470.00 Discount for Assembeling Bikes for Customers      470.00 25%      117.50      352.50 Sales Promotion & Advertising      352.50 15%         52.88      299.63 Bernie Will Pay 299.63 for each bike When Bernie was given payment term 4/15, n/30 It means if Bernie pays within 15 days, he will get discount of 4% other wise he can make the payment within 30 days from the date of invoice a. If Price of the bike is $470, Bernie will pay purchasing Bike 100 or more and get term 4/15, n/30 Price Discount Rate Discount Amount Price After Discount Discount if 100 or more      470.00 35%      164.50      305.50 Discount for Assembeling Bikes for Customers      305.50 25%         76.38      229.13 Sales Promotion & Advertising      229.13 15%         34.37      194.76 Cash Discount if pays 15th day      194.76 4%           7.79      186.97 b. the manufacturer credit Bernie’s account due to term term 4/15, n/30 and pay on 15th Day Cash Discount           7.79 No of Bike purchased      110.00 Bernie account will be credited      856.90 c. the manufacturer credit Bernie’s account due to term term 4/15, n/30 and pay on 30th day Nothing will be credited in Bernie's account

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