Calculation of Vendor Discounts

With the algorithms used to calculate vendor discounts in MYOB Advanced, you can receive the best discount amount on your purchase orders and bills according to the information on vendor discounts available in your system.

You enter discount codes and discount sequences based on information received from specific vendors. You enter a discount code for the vendor on the Vendor Discount Codes (AP205000) form to define the basic settings of discounts for that vendor. To specify extended discount settings, you can create discount sequences related to a discount code by using the Vendor Discounts (AP205000) form. For a discount sequence, you can specify the same discount for all amounts (or quantities). Alternatively, you can create tiers by specifying the break points—with each break point defining the minimum discountable quantity discounts for these tiers expressed as percentages or fixed amounts. For more information, see Vendor Discount Codes and Vendor Discount Sequences.

This topic describes how, based on the discount type and the selected options, the system calculates the discount amounts or percentages.

Discount Calculation for Multiple Units of Measure

If the Multiple Units of Measure feature is enabled on the Enable/Disable Features (CS100000) form, particular items can be bought in different units of measure (UOMs). This may influence the calculation of discounts defined by quantity. You can specify which UOMs the system uses to calculate discounts. In the Apply Quantity Discounts To box on the Price/Discount Settings tab of the Accounts Payable Preferences (AP101000) form, you can select one of the following options:

  • Document Line UOM: The system uses the document line's UOM and quantity for calculating the discount.
  • Base UOM: The system converts the quantity of the ordered items in the document line's UOM to a quantity in the base UOM for the item; the discount is applied to this calculated base quantity.

Calculation of Document-Level Discounts with Tiers Defined by Amounts

For document-level vendor discounts, which are unconditional, the discount tiers can be created only by break points defined as amounts, and the discount can be defined as a percentage of the document amount or as a fixed amount. When the system processes a purchase order or a bill and finds a qualifying discount sequence the discountable amount is compared to the break points in the discount sequence as follows:

  1. The document amount is compared to the first break point. If the document amount is less than the amount of the first break point in the sequence, the discount equals zero, and further comparison is not performed.
  2. The document amount is compared to a next break point. If the document amount is greater than or equal to the amount of any break point but less than the amount of the next break point (or greater than the amount of the last break point), the system calculates the discount as follows:
    • If the discount is a fixed amount, the fixed amount specified as the discount for this tier is deducted from the document amount.
    • If the discount is a percentage, the percent (specified for this tier) of the document amount is calculated and deducted from the document amount.
    • Further comparison is not performed.
  3. Comparison continues similarly, with Step 2 repeated until a discount is found or the last break point is checked.

The examples below illustrate the way these document-level discounts are calculated.

Example 1: If a sequence for a document-level discount has tiers defined by amounts and the discounts are expressed as percentages, the discount amount corresponding to the appropriate tier is subtracted from the document total. Suppose that the sequence is specified with the following break points:

  • $1000: 5%
  • $2000: 7%
  • $5000: 10%

For a document with a $900 total, the discount is $0. For a document with a $2500 total, the discount is $175 (7%), and for a document with a total of $9000, the discount is $900 (10%).

Example 2: Suppose that a sequence for a document-level discount has tiers defined by amounts, with the discounts expressed as fixed amounts that are subtracted from the total amount of the document. Further suppose that the sequence is specified with the following break points:

  • $1000: $100
  • $2000: $225
  • $3000: $350

For purchase orders with amounts less than $1000, your company receives a discount of $0. The discount for an order with a total between $1000 and $1999.99 is $100, the discount on an order between $2000 and $2999.99 is $225, and the discount for an order of $3000 or more is $350.

Calculation of Line-Level Discounts for Tiers Defined by Amounts

The tiers for line-level discounts can be defined by amounts or by quantities. The method of calculation of line-level discounts depends on whether the discount should be applied to the unit prices of items or to the extended prices of the items. Based on the information received from each vendor, you select the appropriate option in the Apply Line-Discounts to box on the Calculation Settings tab of the Vendor Discount Codes (AP204000) form for this vendor.

Line Discounts Applied to Unit Prices

The system calculates line discounts applied to unit prices as follows:

  1. The line item's price is compared to the first break point. If the item price is less than the first break point in the sequence, the discount equals $0, and no further comparison is performed.
  2. The item price is compared to the next break point. If the price is greater than or equal to this break point but less than the next break point (or greater than the last break point), the system calculates the discount as follows:
    • If the discount is a fixed amount, the fixed amount for this tier is deducted from the item price, and the extended price is recalculated.
    • If the discount is a percentage, the percent (specified for this tier) of the item price is calculated and deducted from the item price.
  3. Comparison continues similarly, with Step 2 repeated until a discount is found or the last break point has been reached.

For the particular vendor, if the discounts should be applied to item prices and a sequence is broken down by the quantity of the item, the line quantity of the item is compared to the quantities selected as break points, and the discount is calculated as follows:

  • If the discount is defined as a percentage, the specified percent is deducted from the item price, and then the discounted price is multiplied by the line quantity.
  • If the discount is defined as a fixed amount, the specified fixed amount is deducted from the item price and then the discounted price is multiplied by the line quantity.

Example 4: Your company buys different items with the prices $95, $210, and $600 from the same vendor in the same purchase order. If a sequence for a line-level discount has tiers defined by amounts with the discounts expressed as percentages, the discount amount is calculated as the percent (defined for the appropriate tier) of the item price and is subtracted from the price. Suppose that the sequence is specified with the following break points:

  • $100: 5%
  • $200: 10%
  • $500: 20%

For a line with 10 units of the item priced at $95, the discount will be $0. For a line with 20 units of the item priced at $210, the discount will be $21.0 (10%) per unit with a discount for the line of $420. And for a line with one $600 item, the discount will be $120.

Line Discounts Applied to Extended Prices

If the system is configured to apply line discounts to the extended prices of items and the tiers are defined by line amounts, the system calculates discounts as follows:

  1. The line amount (that is, the extended price of the item) is compared to the first break point. If the amount is less than the first break point in the sequence, the discount equals $0, and no further comparison is performed.
  2. The line amount is compared to the next break point. If the amount is greater than or equal to this break point but less than the next break point (or greater than the last break point), the system calculates the discount as follows:
    • If the discount is a fixed amount, the fixed amount for this tier is deducted from the line amount. No further comparison is performed.
    • If the discount is a percentage, the percent (specified for this tier) of the line amount is calculated and deducted from the line amount. No further comparison is performed.
  3. Comparison continues similarly, with Step 2 repeated until a discount is calculated or the last break point has been checked.

Example 3: Your company buys an item for $95. If a sequence for a line-level discount has tiers defined by amounts and the discounts are expressed as percentages, the discount amount (calculated by using the percent defined for the appropriate tier) of the extended price of the item is subtracted from the extended price. Suppose that the sequence is specified with the following break points:

  • $1000: 5%
  • $2000: 10%
  • $5000: 20%

For a line with 10 items (which means that the extended price is $950), the discount is $0. For a line with 30 items (for an extended price of $2850), the discount is $285 (10%). And for a line with a total of 60 items (the extended price is $5700), the discount is $1140 (20%).