Question

8. You place an order of 350 units of inventory at a unit price of $180. The supplier offers terms of 2/10 Net 30. (10 Points)

1. How long do you have to pay before the account is overdue? If you take the full period, how much should you remit?
2. What is the discount being offered? How quickly must you pay to get the discount? If you take the discount, how much should you remit?
3. If you don’t take the discount, how much interest are you paying implicitly? How many days’ credit are you receving?

(Use Excel and Excel Formulas)

Answer 1

2/10 net 30 refer to trade credit offered to the customers for sale of goods / services. It means that if the due amount is paid within 10 days, the customer will get 2% discount. Otherwise, if the due amount is not paid within 10 days, then no discount is offered and the customer has to pay the entire amount within 30 days.

The customer has 30 days before the account is overdue. If the customer takes full period, the customer has to pay 350 x  180 = $63,000

Discount being offered is $63,000 x 2% = $1,260

The customer needs to pay within 10days to get the discount.

If the discount is taken, the amount to be remitted is $63,000 - $1,260 = $61,740

If discount is not taken, then implicit interest is the discount amount only. 30 days credit is being received.