Quantity discounts are monetary or qualitative reductions adhered to in purchasing a large amount of goods. The main advantage is that the business owner feels he has gotten a good price for his goods, even though the final cost of production may have been much higher than he originally anticipated. Quantity discounts are normally applied to raw materials and finished goods. In the manufacturing industry, raw materials are mainly used to create products and finished goods are made into commerce. When a company has too much of one product or too little of another it will apply a quantity discount so as to keep its overheads down to a reasonable level.
Quantity Discounts are a way of reducing costs in the production of large quantities of a product or service by a manufacturer, wholesaler or retailer. Quantity discounts can take many forms. They may be associated with the quantity of an order being made in terms of units of a product being manufactured. These could also relate to price reductions for increased quantities being sold.
Although profit per unit always applies to every sale regardless of whether there are quantities sold or not, sometimes it is necessary to apply a certain quantity discounting to ensure the financial viability of a business. It may be necessary for the firm to sell at a loss for a certain period of time so as to avoid the possibility of going out of business, for example. Other firms may resort to volume discounts as a way of getting rid of excess stock, for example.