Custom Greetings places an order for 285 reams of card stock paper. Its supplier offers a chain discount on the paper of 26/16. The paper has a list price of $2 per ream. What is the trade discount amount? Round the answer to 2dp.
Answers
Before explaining the answer for this question I would like to explain what "Chain Discount" actually means.
Think that you are a shop owner, selling apples. And you will sell an apple for $10. Let's say that you are giving 20% discount for your customers. Then the discount for an apple would be,
=10 x (20/100)
=$2
And the price after the discount is $8.
And lets say that for the customers who buys more than 10 apples, you will give a further 5% discount. Then the discount would be,
=8 x (5/100)
=$0.4
Last price that you are going sell an apple is,
Initial Price - Total Discount
=10 - (2+0.4)
=10-2.4
=$7.6
Now we can answer our question with this knowledge,
Chain discount of the supplier here is 26/16. Since this Customer Greeting is planning to buy a large quantity of reams (which is 285), supplier will be giving both 26% and 16% discount to Customer Greetings. Let's calculate the total trade discount,
Initial Discount for 1 ream = 2 x (26/100)
= $0.52
New Price for 1 ream = 2-0.52
= $1.48
Second Discount for a ream = 1.48 x (16/100)
= $0.2368
Total Discount for 1 ream = 0.52 + 0.2368
= $0.7568
Total discount for 285 reams = 0.7568 x 285
= $215.688
= $ 215.69
I hope this will be helpful for you to understand and answer this question! Thanks!