Francis works for a local fly-fishing shop. The shop allows employees to purchase two fly rods per year at a discount. This year, Francis purchased one rod. The rod normally retails for $300, was purchased for $225, was sold to Francis for $250, and the employer's average gross profit percentage is 30 percent. What amount of the discount must be included in Francis's income?

Question

Quizplus · Accepted Answer

The discount is the difference between the retail price and the price paid by the employee. In this case, the discount is $300 - $225 = $75. However, the employer's average gross profit percentage is 30 percent, which means that the employer's cost of goods sold is 70 percent of the retail price. In this case, the employer's cost of goods sold is 70 percent of $300 = $210. Therefore, the discount that must be included in Francis's income is $75 - $210 = $0.

Francis Works for a Local Fly-Fishing Shop