Chikis Posted October 21, 2014 Share Posted October 21, 2014 A retailer has an account for N200.00 from a manufacturer who give two months' credit but only after a cash discount of 5% for prompt payment. The retailer borrows N200.00 from his bank at 9% per annum for two months and pays promptly to secure the cash discount. How much does he gain by this transaction? How do I solve this? I could not solve this because I don't fully understand the problem especially the first sentence. Link to comment Share on other sites More sharing options...
Robittybob1 Posted October 21, 2014 Share Posted October 21, 2014 Put down some formulas that might help solve What was the cash discount? How much interest was going to be paid? Compare the two answers. Link to comment Share on other sites More sharing options...
Chikis Posted October 21, 2014 Author Share Posted October 21, 2014 The problem is that I don't understand the first sentence of the question? What does it mean (1) "that the retailer has an account of N200"? (2) "the manufacturer gives credit or two months credit"? Link to comment Share on other sites More sharing options...
Robittybob1 Posted October 21, 2014 Share Posted October 21, 2014 The problem is that I don't understand the first sentence of the question? What does it mean (1) "that the retailer has an account of N200"? (2) "the manufacturer gives credit or two months credit"? The first sentence has been transcribed incorrectly "A retailer has an account for N200.00 from a manufacturer who give two months' credit but only after a cash discount of 5% for prompt payment. " It should say "A retailer has an account for N200.00 from a manufacturer who give two months' credit. A cash discount of 5% for prompt payment is also available. The retailer has obviously brought goods from the manufacturer and the bill is N200. The manufacturer is expecting payment within 2 months or else penalties will apply (but these are not mentioned). Link to comment Share on other sites More sharing options...
Robittybob1 Posted October 21, 2014 Share Posted October 21, 2014 (edited) duplicated Edited October 21, 2014 by Robittybob1 Link to comment Share on other sites More sharing options...
Chikis Posted October 21, 2014 Author Share Posted October 21, 2014 (edited) The first sentence has been transcribed incorrectly "A retailer has an account for N200.00 from a manufacturer who give two months' credit but only after a cash discount of 5% for prompt payment. " It should say "A retailer has an account for N200.00 from a manufacturer who give two months' credit. A cash discount of 5% for prompt payment is also available. The retailer has obviously brought goods from the manufacturer and the bill is N200. The manufacturer is expecting payment within 2 months or else penalties will apply (but these are not mentioned). Thanks for trying to explain, but let me try to understand it more:The retailer has obviously brought goods from the manufacturer and the bill is N200.I understand this to mean that the retailer bought goods from the manufacturer at the cost of N200. Right? The manufacturer is expecting payment within 2 months or else penalties will apply (but these are not mentioned)[math]\longrightarrow[/math] who give two months' credit. A cash discount of 5% for prompt payment is also available..The retailer bought the goods on credit and he is being giving the grace of two months to pay. If he pays in, before, or within two months, he would be giving a discount of 5%. Right Edited October 21, 2014 by Chikis Link to comment Share on other sites More sharing options...
Robittybob1 Posted October 21, 2014 Share Posted October 21, 2014 Thanks for trying to explain, but let me try to understand it more: I understand this to mean that the retailer bought goods from the manufacturer at the cost of N200. Right? The manufacturer is expecting payment within 2 months or else penalties will apply (but these are not mentioned)[math]\longrightarrow[/math]The retailer bought the goods on credit and he is being giving the grace of two months to pay. If he pays in, before, or within two months, he would be giving a discount of 5%. Right No, early payment discount would only happen if it was paid immediately like "cash on delivery", if the retailer waited 2 months before he paid, he would not get any discount in my opinion. Link to comment Share on other sites More sharing options...
studiot Posted October 21, 2014 Share Posted October 21, 2014 (edited) No, early payment discount would only happen if it was paid immediately like "cash on delivery", if the retailer waited 2 months before he paid, he would not get any discount in my opinion. Yes this is true for the purposes of this question and is also normal business practice. Edited October 21, 2014 by studiot Link to comment Share on other sites More sharing options...
Chikis Posted October 21, 2014 Author Share Posted October 21, 2014 Now the term two months credit, means what? Now the term, "two months credit", means what? Link to comment Share on other sites More sharing options...
studiot Posted October 21, 2014 Share Posted October 21, 2014 Here is a review of the stuation or a restatement of the problem. A retailer has just bought goods for a price of N200. If he pays right now he will receive a discount of 5% (so how much does he owe right now?) But he has no money to pay with at this time. He expects to get the money to pay by reselling the goods in the future. So long as he pays within two months he will still only owe N200, but will not receive the discount. He can borrow money right now and pay right now and so receive the discount. But he will have to pay 9% per annum (=per year) on the money he borrows. If he borrows the money and pays 2 months interest how much is that interest? Link to comment Share on other sites More sharing options...
Chikis Posted October 28, 2014 Author Share Posted October 28, 2014 The man is going to pay an amount of N203 to his bank. The discount given to the man N10. He finally bought the good at N190. The man's gain is N203-N190 = N13. Could this be correct? Link to comment Share on other sites More sharing options...
studiot Posted October 28, 2014 Share Posted October 28, 2014 Two find his 'gain' you must consider the difference between two possible courses of action. It is not a question of applying a formula such as gain = sales - costs. So read back over the thread so far and decide what his two possible courses of action are . Obviously he can only carry one course out. Link to comment Share on other sites More sharing options...
Chikis Posted October 30, 2014 Author Share Posted October 30, 2014 (edited) I have got the whole thing now? The retailer made a profit of N10 after he bought the good for N190. When he borrowed from the bank, he incured an intrest of N3. The man paid N3 out of his N10 gain. He had N7 left. His gain is N7. What if the question says what is his gain percent? Edited October 30, 2014 by Chikis Link to comment Share on other sites More sharing options...
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