Question

You place an order for 510 units of inventory at a unit price of $100. The supplier offers terms of 1/10, net 60.

a-1 How long do you have to pay before the account is overdue?

a-2 If you take the full period, how much should you remit?

b-1 What is the discount being offered?

b-2 How quickly must you pay to get the discount?

b-3 If you do take the discount, how much should you remit?

c-1 If you don’t take the discount, how much interest are you paying implicitly?

c-2 How many days’ credit are you receiving?

Answer 1

Answer:
Purchases = Units produced * Purchase per unit
Purchases = 510 * $100
Purchases = $51,000

Credit term is 1/10, net 60

Answer a-1.
You have 60 days before the account is overdue.

Answer a-2.
Amount remitted = $51,000

Answer b-1.
Discount rate = 1%

Answer b-2.
You have to pay within 10 days in order to get the discount.

Answer b-3.
Amount paid = $51,000 – ($51,000 * 1%)
Amount paid = $50,490

Answer c-1.
Implicit interest = $51,000 - $50,490
Implicit interest = $510

Answer c-2.
Days’ credit = 60 - 10
Days’ credit = 50 days