You place an order for 440 units of inventory at a unit price of $105. The suppl

Question

You place an order for 440 units of inventory at a unit price of $105. The supplier offers terms of 1/10, net 90. 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? Discount 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?

Explanation / Answer

Explanation:

A) There are 90 days until account is overdue. If you take the full period, you must remit:
        Remittance = 440 * $105 = $46,200

B) There is 1% discount offered with a 10-day discount period. If you take the discount, you will only have to remit:
Remittance = (1 – 0.01) * ($46,200) = $45,738

C) The implicit interest is the difference between the two remittance amounts, or:
     Implicit Interest = $46,200 - $45,738 = $462

The number of days, credit offered is:
Days Credit = 90 – 10 = 80 Days.

So the answers:

a-1: 90 Days
a-2: $46,200

b-1: 1%
b-2: 10 days
b-3: $45,738

c-1: $462
c-2: 80 Days

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