Trade Discounts

Single Trade Discounts:

Trade discount amount:

When List price is $1,000

With a 40% trade discount rate

Trade discount amount is:

$1,000 X .40 = $400

Multiply the list price by the trade discount rate to get the trade discount amount in
dollars.

Net Price:

When List price is $1,000

With a 40% trade discount rate

Method 1: $1,000 –$ 400 = $600 net price

Or
Method 2 $1,000 X .60 = $600 net price
(1-.40)

Method 1: Take the list price and subtract the trade discount amount to get the net price.

Method 2: Take the list price and multiply it by the complement (1 – trade discount rate)
of the trade discount rate to get the net price.

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List Price (must know net price and trade discount rate):

Trade discount rate of 40%

Net price of $600

600 600
1-.40 .60

= $1,000 net price

Divide the net price by the complement of the trade discount rate (1- trade discount rate)
to get the list price.

Chain Trade discounts:

Chain Discounts:

2/8/9 on a $1,000 (list price) item.

$1,000 $ 980.00 $ 901.60

X .02 X .08 X .09
20 78.40 81.14

$1,000 $ 980.00 $ 901.60

- 20 - 78.40 - 81.14
980 901.60 820.46 net price

The above formula is shown on how to work out the chain discount by lowering the base
with each discount. In more simple terms you will need to multiply the base amount by
the discount rate and than subtract the amount from the base to come up with a new base
amount. Repeat the process each time for each discount.

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Net price equivalent rate:

2/8/9 on a $1,000 (list price) item.

1.00 1.00 1.00

- .02 - .08 - .09
.98 .92 .91

.98 X .92 X .91 = 0.820456

$1,000 X 0.820456 = 820.456 Rounded to $820.46 (actual cost of item or net price)

$1,000 – 820.46 = 179.54 trade discount amount. (The amount taken off the list price.)

The net price equivalent rate is a shorter method to calculate the net price and the
discount amount than the chain discount method.

Step 1.You subtract each discount amount from 1

Step 2.Then you multiply each of the amounts by the next one in the chain which
will produce the net price equivalent rate.
Step 3.Then multiply the list price by the net price equivalent rate that is
produced in step 2. The result of this step will give you the net price.
Step 4.The last step is to subtract the net price from the list price to get the
discount amount.

Single equivalent discount rate:

2/8/9 on a $1,000 (list price) item.

1.00 1.00 1.00

- .02 - .08 - .09
.98 .92 .91

.98 X .92 X .91 = 0.820456

1.000000
- .820456
.179544

1,000 X 0.179544 = 179.544 Rounded: $179.54 ( dollar amount of discount)

Follow the same steps for the Net price equivalent rate

Step 1.You subtract each discount amount from 1

Step 2.Then you multiply each of the amounts by the next one in the chain this
will produce the net price equivalent rate.

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Step 3.Then subtract the net price equivalent rate from 1 to get the single
equivalent discount rate.
Step 4.Then multiply the list price by the single equivalent discount rate to get
the discount amount.