Rainbow Inc.'s sales equal $200,000 each month. Rainbow generally permits credit purchases with terms of 3/10 net 30. Ten (10) percent of total sales are for cash, and the remaining 90 percent pay on credit. Of the credit sales, 20 percent are paid on Day 10 of the billing cycle, and the rest pay on Day 30 (in the following month). What is the amount of the discounts that Rainbow's customers normally take?

Question

Quizplus · Accepted Answer

$720 is the correct amount of discounts. This is calculated as follows: 90% of sales are on credit, which equals $180,000 ($200,000 * 90%). Of these credit sales, 20% take advantage of the discount, which equals $36,000 ($180,000 * 20%). The discount offered is 3%, so the total discount amount is $1,080 ($36,000 * 3%).