Discounts
Understanding Discounts
This guide explains the concept of discounts, how they affect sales prices, and provides a clear example to illustrate their application. This ensures that discounts are accurately applied, giving customers a clear understanding of the savings they receive.
What is a Discount?
A discount is a reduction applied to the original sales price of a product or service. In our case, the discount can be offered on an item or the whole transaction as a fixed amount, reducing the total amount that the customer needs to pay.
How Discounts Work?
Several key aspects determine the application of discounts:
- Original Sales Price: The initial price of the product or service before any discount is applied.
- Discount Amount/Rate: The fixed amount or rate of reduction applied to the original sales price.
- Final Sales Price: The amount the customer pays after the discount is subtracted from the original sales price.
Example Calculation:
Original Transaction-
Item1 Price: $70
Item2 Price: $30
Original Total Transaction Price: $100
Discount Amount: $10 (Discount Rate: 10%)
Transaction After Discount-
Item1 Price After Discount: $70 - (Item1 Price * Discount Rate) => $63
Item2 Price After Discount: $30 - (Item2 Price * Discount Rate) => $27
Total Amount Due: $100 - (Discount Amount) => $90
Therefore, with a discount amount of $10, we calculate the rate from the whole sales price, which is 10% and reduce 10% from each item price.
The discount amount on a $100 sales price is $10, leaving $90 as the final sales price.
Steps to Calculate:
- Identify the Original Sales Price:
Determine the initial price of the transaction. - Calculate the Discount rate:
Use the formula to determine the discount rate based on the original sales price and the discount amount. - Reduce the Relative Discount from the items:
Use the formula to reduce the price of each item by applying the relative discount on the items. - Determine the Final Sales Price:
Subtract the calculated discount amount from the original sales price to get the final sales price.