Question

Rob McMillan is an independent fuel oil and propane distributor and wholesale fuel prices were higher than normal. Rob's last invoice showed that fuel oil was priced at $3.425 per gallon, with trade discounts of 7/5/1.5 available. McMillan Oil offers its own customers credit terms of 2/15, net/30, with a 2% service charge on late payments of the $30,000 in average fuel oil sales per month, normally half of Rob's sales are paid within the discount period, and only 10% incur the monthly service charge. Rob is concerned because a number of his fuel oil customers are behind in their payments, and he is considering some changes. Complete parts 1-4 below 1 Using the starting price of $3.425 per gallon, what is Rob's net price after applying the 7/5/1.5 trade discount series using the net decimal equivalent? $ (Round to three decimal places as needed.)

Answer 1

Ans.

First of all we find the net result of applying the trade discount given in question as 7/5/1.5.

This is interpreted as

A discount of 7% means a reduction to 93%;

A discount of 5% means a reduction to 95% of 93%;

and a discount of 1.5% means a final reduction to 98.5% after applying the above two reductions.

So the net reduction is calculated by multiplying all three as follows:

= 0.93*0.95*0.985=0.8702 or 87.02% means a discount of 12.98%.

By applying this to the starting price of $3.425 per gallon

The discount is $ 3.425 * 12.98% =$ 0.444565

Net Price after applying discount is $ 3.425 - $ 0.444565 =  $2.9804.