Rainbow Inc. has expected sales of $200,000 a month. Rainbow's cash sales are 10% of total sales and the remaining 90 percent pay on credit, of which 20% take advantage of a discount and rest pay during the following month. If Rainbow's credit policy is 2/10 net 30, the amount of discount offered by Rainbow is _____.

Question

Quizplus · Accepted Answer

Total cash sales = 10% of $200,000 = $20,000
Total credit sales = 90% of $200,000 = $180,000
20% of the credit sales take advantage of a discount, so they pay within 10 days and get a 2% discount.
Amount of credit sales that take advantage of the discount = 20% of $180,000 = $36,000
Discount offered = 2% of $36,000 = $720.