Chain Discounts

When using chain discounts, there are two methods that may be used to compute the net cost price:

1. Determine a single equivalent discount and then proceed to compute the net cost price as illustrated earlier. This method is also useful for companies that wish to compare varying discount policies of competing companies.

To compute an equivalent discount, multiply the complements of each of the discounts (100 percent - discount) together and subtract the result from 100 percent. For example, the single discount equivalent of 10 percent and 20 percent and 20 percent is computed as:

Step 1 (100% - 10%) X (100%-20%)
Step 2 0.90 X 0.80 = 0.72
Step 3 Equivalent discount = 100% - 72% = 28%


Example 1
A computer is offered to wholesalers at a  list price of $750, less chain discounts 25 percent and 20 percent. What is the net cost price?

1. (100%-25%) X (100% - 20%)
2. (0.75) X(0.80) = 0.60
3. Equivalent discount = 100% -60% = 40%
4. Discount = $750 X 0.40 = $300
5. Net cost price = $750 - $300 = $450

Alternative method:

1. Price X first discount percentage  ( $750 X 0.25 = $187.50)
2. Price minus first discount  ( $750 - 187.50 = $562.50)
3. Discounted price X second discount percentage  ($562.50 X 0.20 = $112.50)
4. Discounted price minus second discount ($562.50 - $112.50 = $450.00)

2. The net cost price can be computed directly by multiplying the list price by the complement of each of the discount in the series. It does not make any difference in what order the discounts are arranged.

Example 2

Assume the same information as in Example1:

1. (100% - 25%) X (100% - 20%)
2. (0.75) X (0.80) = 0.60
3. $750 X 0.60 = $450