Question

On May 8, 2018, Leon’s Kitchen Hut bought a set of pots with a $108 list price from Lambert Manufacturing. Leon’s receives a 35% trade discount. Terms of the sale were 2/10, n/30. On May 14, Leon’s sent a check to Lambert for the pots. Leon’s expenses are 25% of the selling price. Leon’s must also make a profit of 12% of the selling price. A competitor marked down the same set of pots 35%. Assume Leon’s reduces its selling price by 19%.

a.  What is Kitchen Hut's cost for the set of pots? (Round your answer to the nearest cent.)

b.  What is Kitchen Hut's original selling price? (Round your answer to the nearest cent.)

c.  What is the sale price at Kitchen Hut? (Round your answer to the nearest cent.)

Answer 1

Solution

1. Determination of Kitchen Hut’s cost for the set of pots:

List price = $108

Trade discount = 35%

Purchase price = 108 – 35% x 108 = $70.20

Since Leon paid within 10 days, cash discount of 2% is available.

Cost of set of pots = 70.20 - 2% x 70.20 = $68.80

Hence, Kitchen Hut’s cost for the set of pots = $68.80

2. Determination of Kitchen Hut’s original selling price:

Selling price = cost + markup

Markup = expenses + profit

Markup = 25% of selling price + 12% of selling price = 37% of selling price

Selling price = cost + 37% of selling price

Selling price = $68.80 + 37% x selling price

63% x selling price = $68.80

Selling price = $68.80/63% = $109.21

Hence, Kitchen Hut’s original selling price = $109.21

Markup = 37% x 109.21 = $40.41

Expenses = 25% x 109.21 = $27.30

Profit = 12% x 109.21 = $13.10

Cost plus expenses = $68.80 + 27.30 = $96.10

3. Determination of sale price at Kitchen Hut:

Reduction in sale price by 19%

Selling price = $109.21

Discount (reduction of 19%) = 109.21 x 19% = $20.75

Sale price at Kitchen Hut = 109.21 – 20.75 = $88.46

Hence, Sale price at Kitchen Hut = $88.46

Actual cost plus expenses = $96.10

Sale price after 19% discount = $88.46

Hence, a loss of $7.64 is incurred when the selling price is reduced by 19%.