You place an order for 290 units of inventory at a unit price of $110. The suppl
ID: 2717601 • Letter: Y
Question
You place an order for 290 units of inventory at a unit price of $110. The supplier offers terms of 2/10, net 30.
How long do you have to pay before the account is overdue?
If you take the full period, how much should you remit?
What is the discount being offered?
How quickly must you pay to get the discount?
If you do take the discount, how much should you remit?
If you don’t take the discount, how much interest are you paying implicitly?
How many days’ credit are you receiving?
You place an order for 290 units of inventory at a unit price of $110. The supplier offers terms of 2/10, net 30.
Explanation / Answer
2/10 net 30 Definition
2/10 net 30, defined as the trade credit in which clients can opt to either receive a 2 percent discount for payment to a vendor within 10 days or pay the full amount (net) of their accounts payable in 30 days, is extremely common in business to business sales. Anywhere a vendor offers credit terms it is likely that they also offer some discount to motivate early payment.
He 2/10 net 30 discounts make no statement on the payment of bills beyond 30 days. Vendors may or may not have a late payment penalty for such customers. It is up to the discretion of the purchaser to decide the best method of closing accounts payable when 2/10 n 30 is available.
/10 net 30 Formula
There is no single 2/10 net 30 formula. Despite this, 2/10 net 30 interest rate equations can often fall into this model:
If paid within 10 days:
Invoice Amount X 98% = 2/10 net 30 effective interest rate
If paid within 30 days:
Pay the invoice in full
units
rate
Order Cost
Amount after discount
290
110
31900
31262
Interest=2%*360/(30-10)=36%
If you don’t take discount you should pay 36% interest of using 319 for 20 days.
You place an order for 290 units of inventory at a unit price of $110. The supplier offers terms of 2/10, net 30.
a-1
How long do you have to pay before the account is overdue?
Days until overdue
30 days
a-2
If you take the full period, how much should you remit?
Remittance
$ 31900
b-1
What is the discount being offered?
Discount offered
2 %
b-2
How quickly must you pay to get the discount?
Number of days
10days
b-3
If you do take the discount, how much should you remit?
Remittance
$ 31262
c-1
If you don’t take the discount, how much interest are you paying implicitly?
Implicit interest
36%
c-2
How many days’ credit are you receiving?
Days' credit
30days
units
rate
Order Cost
Amount after discount
290
110
31900
31262
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