Stay clean Dec 09 question

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 🙂

Yes they were – that is why I have written what I have in my second paragraph.

But 950,000 is the gross price, not the net price.

If you read my second paragraph again, I have calculated how much they will pay if we use the net prices of 70 and 100. (The 95% is to account for the 5% fall in sales).
This comes to 902,500.
This would be the net price assuming a discount of 5%. This means that the full price (the gross price) would be 950,000.

So the gross total price will still be 950,000, but they will only be getting a 3% discount on it instead of a 5% discount.
(They will be losing 2% discount on 950,000 which, again, is 19,000)

You are welcome 🙂