Quoted price with discounts
The customer deducts discounts from the higher price, so you divide by (1 − rate) instead of adding the rate on top.
Worked example
The total cost of an order is £6,060.00. The quote adds a 9% profit mark-up, allows a 3% cash discount and a 25% trade discount. Work out the prices (each rounded to the penny).
Worked solution
- 1.Cash price = £6,060.00 × 1.09 = £6,605.40
- 2.The cash discount is taken off the invoice price, so divide: £6,605.40 / 0.97 = £6,809.69
- 3.The trade discount is taken off the list price: £6,809.69 / 0.75 = £9,079.59
Typical mistake: Adding the discounts on top (× 1.02) instead of dividing (÷ 0.98); the customer deducts them from the higher price.
Your turn
Three problems of exactly this type, each time with new numbers. Amounts with or without thousands separators.
Task
The total cost of an order is £5,461.00. The quote adds a 9% profit mark-up, allows a 3% cash discount and a 25% trade discount. Work out the prices (each rounded to the penny).
Cash price in £
Invoice price before cash discount in £
List price (net) in £
Amounts like 12,500 or 12500.50; percentages as a number (12.5). Round to the penny or 2 decimal places.
Formulas for this topic
- Material cost = direct materials + material overhead
- Conversion cost = direct labour + production overhead
- Production cost = material + conversion
- Total cost = production cost + administration and selling overheads
- Discounts are deducted from the higher price: divide by (1 − rate)
Typical mistake: Adding the discounts on top (× 1.02) instead of dividing (÷ 0.98); the customer deducts them from the higher price.
Frequently asked questions
What is the typical mistake in "Quoted price with discounts"?
Adding the discounts on top (× 1.02) instead of dividing (÷ 0.98); the customer deducts them from the higher price.
Why divide for discounts?
The customer deducts the discount from the higher price, so you divide by (1 − rate) to end up with the price you need.