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Hello John,
I am doing the revision kit but I have a doubt on question 34. When they calculated the lost discount its the difference between 902500(current buying cost- discoute) and 921500. I dont have a clue how can I find this 921500. I was almost 20 minutes trying to figure out but i dont have idea.
Pleaae help me
Thanks
EstherFrom note 1 of the question, we can calculate how much they are current paying in total for material – its 1,010,000 and because it is as high as it is, they are currently getting a 5% discount (and the costs given in note (1) must be the amounts they are actually paying per unit – i.e. after getting the discount).
From note 2 we know that TD will stop and the other two will fall, and so I think you are probably clear of the workings in the answer that the total cost they will have is 902,500. However this would be the actual amount they would be paying if they were still getting a 5% discount.
Since the discount is 5% of the grown price, the amount they are currently paying is 95% of the gross price. Therefore the gross price of the new total purchases is 100/95 X 902500 = 950,000. But this is below the 5% discount level – they will be buying goods with a gross price of 950000 but they will only get a 3% discount and so the cost will actually be 97% x 950,000 = 921500.
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