Convincing Features
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Assignment Brief and Guidance:
Misuse and abuse of trade discounts infringe on fair trade laws and can cost companies stiff fines and legal fees. One way to avoid misuse is to establish the same discount for everyone and give rebates based solely on volume.
Green Manufacturing, Inc., uses this policy for equipment sales to companies that develop photographs. For example, one developing machine component, a special hinge, sells for $3.10 and is discounted to $3 with the purchase of 15,000 pieces per month.
In an effort to run more cost-efficient large jobs and capture market share, Green Manufacturing will give an incentive for higher volume. It offers a 5% rebate on orders of 20,000 pieces per month, or a 20 cents a piece rebate for orders of at least 22,000 pieces per month. The increased volume needed for a rebate is determined by market research that tells Green Manufacturing factors such as the volume a customer is capable of ordering per month, and the volume and cost of the same part a customer currently buys from other suppliers. The rebate amount is determined by Green Manufacturing’s profit margin and the company’s ability to acquire sufficient raw materials to produce larger volumes without raising production costs. In some industries, this is called a bill-back because the buyer receives credit toward the next order rather than a rebate check.
However, Green manufacturing, Inc. uses a machine to produce the hinge and since the discounts are implemented, the order increased dramatically. Green Manufacturing, Inc. is planning for a second machine to overcome scarce resources on production capacity. The machines cost $225,000 and can be used for 8 years. Meanwhile, the supplier also offers lease service on a 30% cost increment for lease price and repayable for 8 years with an interest rate
of 10%. Upon acquisition, the old machine can be trade-in for $5,000.
Tasks:
1. Explain the following and provide an appropriate example:
A. Trade
B. Discount and rebate
C. Single and multiple discounts
D. Cost and profit
E. Depreciation
F. Interest rate
G. Time value
H. Different investments
2. Calculate, and round to the nearest hundredth, the revenue, discount amount, and rate assuming if the purchase is:
A. 16,000 pieces
B. 20,500 pieces
C. 24,000 pieces
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