Bookkeeping and Accounting by Joel Lerner & Rajul Y. Gokarn

Author:Joel Lerner & Rajul Y. Gokarn
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2007-04-04T04:00:00+00:00

12.2 CHAIN DISCOUNTS

Rather than give varying increasing single discounts to different classes of purchasers, some companies use chain discounts. These have the advantage of appearing to be higher and emphasizing to the buyer the fact that she or he receives more than one discount.

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 is computed as:

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