Shut down decision

The materials prices in the question are net of discount. The current total cost of materials is (5000 x 70) + (6000 x 100) + (1200 x 50) = 1010000. From the discount table, this means that they are currently getting a discount of 5%. If they stop TD, then the cost of materials (using the net prices given) would be (5000 x 95% x 70) + (6000 x 95% x 100) = 902500. However, this would be assuming that they would still be getting a 5% discount because they are the net prices. So the full price (without any discount) would be 100/95 x 902500 = 950,000. So using the net figures would be assuming that they were getting a discount of 950,000 – 902,500 = 47,500 (or, if you prefer, 5% x 950,000). However, with a gross prices of 950,000 they will only be allowed a discount of 3%, which is 3% x 950,000 = 28,500. So….the discount they are losing is 47,500 – 28,500 = 19,000. I hope that helps :-)

wow!.... first, i cant thank u enough for going thru the trouble .... i am very very grateful... i have to read the answer carefully and will get back to u in a bit...but i wanted to thank u first!

No problem :-)

first: "net of discount" means prices after discount?

second: am assuming the prices given are after discount third: i am thinking discount before and after 4th: my total net purchases were 1010. this clearly is above the 960 mark, so there must be a discount of 5%. so, the gross purchases: X - 5%X=1010, which gives 1063 thus total discount before dropping TD =1063-1010=53 i am going to stop here before i move on ... to make sure i am on the right track

You are on the right track - what you have written is correct :-)

cool. so, at 10105th: now, we drop TD and that leaves us with net purchases of 950 (350+600). 6th: the trick now is to find the gross value of 950. for argument's sake, lets assume that gross was 1000. that wd give 5% disc . and voila, 1000-5%1000=950 last: the discount at net 1010 was 53 and discount at net of 950 is 50. lost discount is 3k. where am i going wrong...

pls ignore my last reply.... i forgot the 5% drop in sales...will post new workingin a bit

Work on the gross prices. After stopping TD the total gross price is only in the 3% range and you can work out the new total discount.

when we drop TD, there will be a stated 5% drop in sales .. this implies that the final net purchase figure will be 902.5 .. (950 - 5%950) last: the trick now is to calculate the gross amount for 902.5 i am working backwards: at 960, the discount is 3%,28.8 (3%960), so gross must be less than 960, thus the 3% disc is confirmed. so X - 3%X=902.5, X=902.5/.97 = 930.412 and the disc = 930.412 - 902.5 = 27.912 we were getting a disc of 53 loss in disc=53-28=25 (rounded) where am i wrong?

No - work on the gross amount. Deal with the drop in sales - see what the gross amount then is, and only then calculate the discount.