A General Motors incentive program designed to reduce inventory of certain low-selling models offers a $6,200 extra dealer incentive for each of these vehicles that the dealer moved into its rental or service fleets. As the accountant for a dealership with a number of these vehicles left in stock, your manager has asked you to calculate certain invoice figures. The normal trade discount from GM is 13%. If the average sticker price (list price) of these remaining vehicles at your dealership is $29,500, calculate the following. A. What is the amount of the trade discount, including the incentive?
B. What is the trade discount rate?
C. What is the net price (invoice price) to your dealership?
D. If the cars were then sold from the fleets at $1,000 over "invoice" (net price), what is the total percentage savings to the consumer based on the list price?
E. Although these incentive prices reflect extraordinary discounts to the consumer, what other factors should a consumer consider before purchasing a "discontinued" brand of vehicle?

A. Amount of the trade discount plus the incentive = $10,035

B. Trade discount rate = 34%

C. Net price = $19,465

D. Total percentage savings = 30.63%

E. Before purchasing a discounted" brand of vehicle, the other factors to consider apart from the price  are quality, cost of ownership, and reliability.

Explanation:

A. What is the amount of the trade discount, including the incentive?

Discount amount from the normal trade discount rate = List price * Normal discount rate = $29,500 * 13% = $3,835

Extra dealer incentive for each vehicle = $6,200

The amount of the trade discount, including the incentive, can now be calculated as follows:

Amount of the trade discount plus the incentive = $3,835 + $6,200 = $10,035

B. What is the trade discount rate?

This can be calculated using the following formula:

Trade discount rate = Amount of the trade discount plus the incentive / List price ……………… (1)

Substituting the relevant values from the question and from part A into equation (1), we have:

Trade discount rate = $10,035 / $29,500 = 0.340169491525424

Rounding to 2 decimal places, we have:

Trade discount rate = 0.34, or 34%

C. What is the net price (invoice price) to your dealership?

This can be calculated as follows:

Net price = List price - Amount of the trade discount plus the incentive = $29,500 - $10,035 = $19,465

D. If the cars were then sold from the fleets at $1,000 over "invoice" (net price), what is the total percentage savings to the consumer based on the list price?

List price = $29,500

Net price = $19,465

Amount over "invoice" = $1,000

Selling price = Net price + Amount over "invoice" = $19,645 + $1,000 = 20,645

Total cost saving = List price - Selling price = $29,500 - 20,645 = $9,035

The total percentage savings to the consumer based on the list price can now be calculated as follows:

Total percentage savings = ($9,035 / $29,500) * 100 = 0.306271186440678 * 100 = 30.6271186440678%

Rounding to 2 decimal places, we have:

Total percentage savings = 30.63%

E. Although these incentive prices reflect extraordinary discounts to the consumer, what other factors should a consumer consider before purchasing a "discounted" brand of vehicle?

Before purchasing a discounted" brand of vehicle, the other factors to consider apart from the price are quality, cost of ownership, and reliability. These are explained below:

Quality: This can be described as the workmanship and durability of the vehicle itself as well as its parts over time. If the car is durable and have good workmanship, it is good to buy it.

Cost of ownership: This costs include maintenance, repairs, depreciation, insurance, and fuel that have to be incurred in the long term. If they are too high, it is not advisable to buy the vehicle.

Reliability: It indicates the extent to which the vehicle can be relied on that it will not develop unnecessary faults or breakdown unnecessarily. Reliability of a vehicle can be determined from the number of years or length of kilometres on the warranty of the vehicle. The higher the number of years or length of kilometres on the warranty of a vehicle, the more reliable it is and the more advisable it is to buy the vehicle, and vice versa.

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