Question

Dr. Maryam Al Amri, a professional medical doctor has recently bought the new clinic. During Ramadan offer, she went to the Nesto Electronics to buy the Air Conditioner for her clinic. The Nesto has wide range of AC’s but she selects Samsung V5.4 model. The product was priced RO 270 and Nesto was offering 20 % discount on the selling price. During the conversation with Nesto Manager, Dr. Maryam came to know that Nesto had bought this AC from the manufacturer for RO 200.

a) What is the Nesto’s markup rate on cost and how much is the markup amount?

b) What is the amount of discount Nesto is offering?   

c) How much amount Dr. Maryam has to pay to buy the AC?   

d) If Nesto’s rate of markup is 20% on cost, what would be the selling price of the AC?

e) Does discount encourages more sales? Discuss critically

Answer 1

a) Nesto mark up rate on cost is = (Net Sale price- Cost price)/Cost price

=(206-200)/200

   =6/200

   = 3% Markup on cost

Net selling price= 270*80%= 206

b) Discount amount offered by Nesto= 270*20%= 54

c) Dr Maryam has to pay = (270-54)= RO 206 to buy AC

d) If Nesto rate of markup is 20% on cost then net selling price should be = 200+20% of 200= RO 240

Now considering that Nesto will offer 20% discount on sale price then Sale price should be = 240/80%= RO 300

e) It varies from case to case basis. If Nesto is offering discount for whole year then it does not get any impact on sales but if Nesto is offering discount for some particulars days then it definitely encourages sales assuming that Nesto keeps sales price constant in both cases.