This answer results from two errors: (1) using the total period for payment in the denominator of the first part of the formula for calculating the cost of not taking a cash discount that is offered for early payment and (2) using 100% (or 1.00) in the denominator of the second part of the formula. The denominator of the first part of the formula should be Total Period for Payment ? Period for Discount Payment. The denominator of the second part of the formula should be 100% (or 1.00) minus the discount % (or the discount % in decimal form). The correct formula is: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount %
This question is solved using the following formula: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount % This answer could result from two errors: (1) Using 30 as the denominator in the first part of the formula. However, the total period for payment is 45 days, and the period for the discount payment is 10 days. 45 ? 10 = 35, not 30; and (2) Using .03 as the second part of the formula. The second part of the formula should be .03 ÷ (100% ? Discount %).
This question is solved using the following formula: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount % This answer results from using 30 as the denominator in the first part of the formula. However, the total period for payment is 45 days, and the period for the discount payment is 10 days. 45 ? 10 = 35, not 30.
This question is solved using the following formula: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount % Inputting the information into the formula, we get 360 × .03 45 ? 10 1.00 ?.03 = 10.28571428 × .030927835 = .3181 or 31.81%. This is the cost of not taking the discount.
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