The original price refers to the initial or starting cost of an item before any discounts, taxes, or other adjustments are applied. It represents the base value from which subsequent calculations, such as sales tax and commission, are derived.
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The original price is the foundation for calculating sales tax, commissions, and discounts on an item.
When an item is discounted, the discount is subtracted from the original price to determine the selling price.
Sales tax is calculated as a percentage of the original price, and is added to the selling price.
Commissions are typically calculated as a percentage of the original price, not the selling price.
Knowing the original price is essential for understanding the impact of discounts, taxes, and commissions on the final cost of an item.
Review Questions
How is the original price used to calculate the selling price of an item with a discount?
To calculate the selling price of an item with a discount, the original price is first determined. The discount, which is typically expressed as a percentage or a fixed monetary amount, is then subtracted from the original price. The resulting value is the selling price. For example, if the original price of an item is $100 and it is discounted by 20%, the selling price would be $80 ($100 - (0.20 x $100)).
Explain how the original price is used to determine the sales tax on an item.
Sales tax is calculated as a percentage of the original price of an item. To determine the sales tax, the original price is multiplied by the applicable sales tax rate. For instance, if the original price of an item is $50 and the sales tax rate is 8%, the sales tax would be $4 ($50 x 0.08). The selling price would then be the original price plus the sales tax, which in this case would be $54 ($50 + $4).
Analyze how the original price is used to calculate the commission on the sale of an item.
Commissions are typically calculated as a percentage of the original price of an item, not the selling price. This means that the original price is the base value used to determine the commission amount. For example, if the original price of an item is $200 and the commission rate is 10%, the commission earned would be $20 (0.10 x $200), regardless of any discounts or taxes applied to the selling price. Understanding the relationship between the original price and commission is crucial for accurately calculating the compensation earned on a sale.