A $75 toaster is sold in bulk to your store for $60. Calculate the trade discount rate.
Answer (2)
Calculate the discount amount: $\text{Discount} = $75 - $60 = 15 .
Calculate the trade discount rate: $\text{Rate} = \frac{$15}{ 75} = 0.2 .
Convert the rate to a percentage: 0.2 × 100 = 20% .
The trade discount rate is 20% .
Explanation
Understanding the Problem We are given that a toaster with a list price of $75 is sold to a store for $60. We need to find the trade discount rate.
Calculating the Discount Amount First, we need to calculate the discount amount. The discount amount is the difference between the list price and the selling price. So, the discount amount is: D = \text{List Price} - \text{Selling Price} = $75 - $60 = $15
Calculating the Trade Discount Rate Next, we calculate the trade discount rate. The trade discount rate is the discount amount divided by the list price. So, the trade discount rate is: R = \frac{\text{Discount Amount}}{\text{List Price}} = \frac{$15}{$75} = 0.2
Expressing as a Percentage Finally, we express the trade discount rate as a percentage by multiplying by 100: Trade Discount Rate Percentage = 0.2 × 100 = 20%
Examples
Trade discounts are commonly used in retail to encourage bulk purchases. For example, if a store buys 100 toasters instead of just one, the manufacturer might offer a larger trade discount, reducing the cost per toaster and increasing the store's potential profit margin. Understanding trade discount rates helps businesses analyze the true cost of goods and make informed purchasing decisions, ensuring they can offer competitive prices to consumers while maintaining profitability.
The trade discount rate for the toaster is calculated by finding the difference between the list price and the selling price, which is $15. Dividing this by the list price of $75 gives us a rate of 0.2, which translates to a trade discount rate of 20%. Understanding this rate is essential for businesses to determine profitability when purchasing goods.
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