The supply chain is one of the most important areas within an organization because it controls costs. Inventory, equipment and other operational needs are usually purchased on a contract that gives the buyer discounts with large purchases. These discounts are referred to as volume discounts and they are usually expressed as a percentage of total items or dollar amount purchased. While most vendors will take the volume discount automatically, it is important to do periodic audits of invoices and remittances to ensure discounts are being taken.
Obtain the contract for the inventory or items purchased. This may be held by legal or at the controller level of the organization.
Determine the current volume discount. This will usually be in the section of the contract pertaining to pricing. For instance, one volume discount may be a percentage discount once a certain revenue threshold has been hit, such as 5 percent off of every $10,000. Another percentage discount may be triggered by the number of items sold, but the calculation is the same as the percentage of sales, such as 5 percent off or every 100 chairs purchased.
Determine the current volume levels. Assume that 150 items have been sold for a total of $15,000 in sales.
Calculate the volume discount. If the discount is based on a percentage of sales, the calculation is the percentage multiplied by the total sales. The calculation for this example is 5 percent multiplied by $15,000 or $750. The calculation based on number of items sold would be the same since the percentages are the same.
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