Question

Case 2: Mathematics of Buying and Selling

You are the purchasing officer of a fast-food restaurant that is selling hamburger in the city of Muscat. The fast food chain business operates 25 stores strategically located in the region. Due to the decline in demand caused by the epidemic, the company is proposing measures to cut cost. The manager asked you to look for cheaper source of raw materials (bread). The company always avail of trade and cash discount. You decided to call the suppliers and gathered the following data;

Supplier A (Lulu Supermarket) – The supplier offers 15% trade discount.

Supplier B (Carrefour Market) – The supplier offers chain discounts of 10/5/2.

Supplier C (Danube Supermarket) – The supplier offers no trade discount but cash discount of 5/10, n/30.

Supplier D (Panda Supermarket) – The supplier offers trade discount of 10%, the terms of payment are 2/10, n/30.

A. IfthecompanydecidestobuyOMR1,500worthofbreadfromSupplier A (LuluSupermarket), what is the amount of trade discount? What is the net price?

B. IfthecompanydecidestobuyOMR1,500worthofbreadfromSupplier B (CarrefourMarket), what is the single discount equivalent? What is the net price?

C. if the company decide to buy 1OMR ,500worthofbreadfromSupplier C (Danube Supermarket), what is the amount of discount and the price paid if made within the discount period?

D. If the company decides to buy OMR 1,500 worth of bread from Supplier D (Panda Supermarket), what is the amount of trade discount, cash discount and the price paid if made within the discount period? (2Marks)

E. which supplier would you recommend ?Discuss your reason. (1Mark)

F. Discuss behavioral and non-financial factors you consider when choosing a supplier. Explain your answer.

Answer 1

A) Given Supplier A ( Lulu Supermarket)

Trade discount = 15%

Amount = OMR 1500

Discount = 1500 x 15/100 = 225

Discount = OMR 225

Net price = amount - discount

= 1500-225

= OMR 1275

B) Supplier B ( Carrefour Market)

Given chain discount = 10/5/2

single discount equivalent = 1 - Net price factor

Net price factor = (1-0.1) (1-0.5) (1-0.02) = 0.8379

Single discount equivalent = 1 - 0.8379 = 16.21%

Net price = (Amount - Discount) or (Net price factor x Amount)

= 0.8379 x 1500

Net price = 1250.85 OMR

C) Supplier C ( Danube Supermarket)

No trade discount, cash discount of 5/10, n/30.

That means there will be a discount of 5% on amount if paid within 10 days from date of invoice.

Discount = 5%, 0.05 x 1500 = 1425

Net price = OMR 1425

D) Supplier D ( Panda Supermarket)

Trade discount = 10% = 0.10 x 1500 = 150 OMR

Net price factor = 1 - discount = 1 - 0.1 = 0.9

Amount of invoice = 1500 x 0.9 = OMR 1350 (or) ( 1500 - 150)

Given payment terms are 2/10.

Net price = Amount - Trade discount - cash discount

= 1500 - 150 -27

OMR 1323

E) From above data Net price of supplies B (1256.85) is low. Hence, recommendation of store B is done

F) Factors to consider while choosing a supplier

1. Cultural fit including values.
2. Experience in-market and current references.
3. Flexibility
4. Quality
5. Response to change