Pricing Merchandise

Trade Discount

When merchandise is offered for sale by manufacturers or wholesalers, a list or catalog price is set for each item. This represents the price that the ultimate consumer will pay for the item.
Rather than printing separate prices for each of the potential purchasers (wholesaler, retailer, consumer), the seller gives the various classes of buyers a separate discount sheet, detailing the discount offered to his or her class of purchaser. Thus, the trade discount is not a true discount but is considered to be an adjustment of the price.

If the seller wishes to change the price offered to the wholesaler or retailer, a revised discount schedule, using the original list or catalog price, would be sent.

The list or catalog price also provides the retailer with a suggested selling price for the item.

The price the buyer pays for the item (net cost price) is computed by multiplying the list or catalog price by the discount rate and then subtracting this discount from the list or catalog price.

Example 1

A $350 (list price) computer is sold to a wholesaler at a 25% trade discount. The cost to the wholesaler is:

Step 1
List price            $350.00
Trade discount   X  25%
Trade discount    $ 87.50

Step 2         
List price              $350.00
Trade discount      -  87.50 
Net cost price       $262.50

Mathematically, this procedure may be simplified by multiplying the list or catalog  of the discount rate (the difference between the discount rate and 100 percent).

Example 2

List price               $350.00
(100%-25%)        X   75%
Net cost price       $262.50
  
Transportation costs (if applicable) are not subject to a trade discount and would be added to the net cost price.

Example 3

A $350 (list price) computer is sold to a wholesaler at a 25% trade discount. Transportation charges on the shipment total $25. The net cost price is:

List price                                               $350.00
(100-25%)                                              X 75%
Net cost price                                       $262.50
Transportation charges                        +    25.00
Net cost price including transportation   $287.50

                       

 Read The Following Details:

Chain Discounts
Cash Discount
Markup
Cost As A Basis 
Markdowns Turnover-Ratio For Inventory
Number Of Days Sales In Inventory