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Accounting for Pennies
July 30, 2012 12:38 PM   Subscribe

At some stores (the convenience store around the corner), the price I pay always comes out to a round(ish) number. Either ending in a 5 or a zero. So that the change I am given won't have any pennies in it. This is convenient for me and the person behind the register. At other stores, there seems to be little interest in getting those round prices. A purchase is just as likely to end in .68 as .50. Why does the consideration of coins influence the pricing of some stores and not others?
posted by Jagz-Mario to Work & Money (15 answers total) 1 user marked this as a favorite
 
I can only speak from a restaurant perspective, not retail, but in my experience, it has to do with whether or not sales tax is included in the prices of items or not.

For example, Store A will price an item at $3.25, and the tax is included. There's some accounting work to do on their end to figure out what they need to pay the city/state in taxes, but it's easy on the consumer.

Store B will price an item at $3.00, and tax is calculated at the register. The drawer reconciliation at the end of the day shows the total tax money taken in, so it's easier for the owners of the store to figure out what to pay the government, but the customer is left with extra pennies in their pockets.
posted by brand-gnu at 12:43 PM on July 30, 2012


I'd guess that at a lot of stores, most transactions are done with a credit or debit card so they never touch their coins and having a round total doesn't actually create an convenience.
posted by VTX at 12:46 PM on July 30, 2012


Or they could be rounding up and pocketing the difference. My impression is that there's a fair amount of sales tax fraud out there, particularly at small non-chain businesses.
posted by postel's law at 12:49 PM on July 30, 2012


Not sure how universal this is - but one of my college friends cashiered at a gas station. They also did this - rounded down to the nearest multiple of 5 cents. Quite the opposite of tax fraud, they were willing to take the hit of a few cents now and then because the markup was already so high on everything they sold. It was worth it to the owners not to have to deal in pennies at all.
posted by trivia genius at 12:55 PM on July 30, 2012


I can only speak from a restaurant perspective, not retail, but in my experience, it has to do with whether or not sales tax is included in the prices of items or not.
There are also cases in which items will have seemingly strange prices (e.g. ending in .27) which, once tax is added, become nicely coin-rounded. The property these establishments seem to have in common is that someone really really loves their job.
posted by feral_goldfish at 1:01 PM on July 30, 2012 [4 favorites]


Assuming that most stores would prefer to sell you more than one item, it's really impossible to set pricing so that, when tax is added, all sales totals with tax will end up divisible by 5. That's because the tax is computed on the total value of the items. So for example, if there's a 6 percent tax, you could price item A at 71 cents, which comes to 75 cents with tax (75.26, round to 75); item B at 90 cents, which comes to 95 cents with tax (95.40, round to 95 cents). So far so good. But if you buy both together, the two items add up to $1.66, which comes to $1.76 with tax (175.96, round to 176). So the only way a store can do this is to round every total purchase down to the nearest 5 cents, because rounding up would not be legal.

If you assume that the average sale is rounded down 2.5 cents (since the overage could be anything from 0.1 to 4.9 cents), and the store does 500 sales transactions per day (not unusual for a 24-hour convenience store), this policy would cost them $4,562.50 per year (365 x 500 x $.025). In a business where the bottom line margin on sales is probably under 10 percent, that's real money. Dealing with pennies probably doesn't really add identifiable costs. So most stores will elect not to do the rounding-down.
posted by beagle at 1:22 PM on July 30, 2012 [1 favorite]


Small shops (like, family-owned) are more likely to count floats and do banking by hand, or at least by the same person who works there. Cutting out the pennies means less time counting, and less weight.
posted by Jehan at 1:23 PM on July 30, 2012


The solution that some countries have found to this problem is either a) requiring stores to include tax in advertised prices (although, some stores still choose the psychological advantage of making something end in a .67 or .89 or whatever); or b) eliminating pennies entirely, and requiring stores to round up or down to the nearest five cents accordingly.
posted by antifuse at 1:46 PM on July 30, 2012


Thanks for info everyone. Sometimes I'll get to a register to pay for a Snickers bar, the price after tax will be 1.12, I'll give 2 dollars, and the clerk will be annoyed that I don't have the change because she's sick of doling out 9 coins on a given transaction. Then with all those coins sloshing around in my pocket, plus the receipt which I need to find a trash can for, it makes me want to just find a vending machine instead.
posted by Jagz-Mario at 1:48 PM on July 30, 2012


Rounding up should be legal. It would do wonders for the fingers and the sanity of millions of cashiers. When I worked in a convenience store, I would look eagerly at the price the register spit back at me, hoping for a convenient number that didn't involve lots of different kinds of coins. It never showed on my face, but I felt the disappointment when numbers like $12.36 came up.
posted by Jagz-Mario at 1:54 PM on July 30, 2012


Really interesting information about how the penny costs more to produce then it's actually worth.
posted by royalsong at 1:58 PM on July 30, 2012


(this is called Swedish rounding, btw.)
posted by scruss at 1:59 PM on July 30, 2012


My summers during high school were spent working at the local movie theatre. I remember being really impressed when I realized that they planned prices in advance so that after tax was added, the total would end with either $.25, $.50, $.75, or $.00 so that people could pay with only dollars and quarters when they used cash. On weekends and holidays, when we were swamped with customers, this made the process of paying for tickets/concessions SO much more efficient. They may have lost a couple of cents on the sale, but the time saved counting pennies and nickels after closing at 2 AM made it totally worth it!

They also only offered popcorn, hot dogs, and nachos as food options. No corn dogs, no chicken fingers, no sushi, no soft pretzels... The company policy was that if you offer people too many choices, they take too long and are not as happy with their choices. Having a not-so-slight obsession with efficiency, I was pretty impressed!
posted by genekelly'srollerskates at 5:43 PM on July 30, 2012 [3 favorites]


Feel free to move to Canada, we are starting to phase out the penny beginning this year.

And, so that I'm actually answering the question, one factor in whether or not it's worth it to a business to fiddle with prices to get mostly round numbers may be how much their bank charges them for change handling. Personal customers might be able to take a roll of pennies in and get credited for 50cents, but business customers who bring change in regularly or have to buy it regularly are a) wasting time at the bank, since they can't just do a night deposit and b) paying a premium for their coinage whether depositing or withdrawing.
posted by jacquilynne at 7:03 PM on July 30, 2012 [1 favorite]


Singapore has a pretty nice system. Their one cent coin is no longer in circulation (and I believe they have stopped minting five cent coins and will be withdrawing them at some point in the future). Cheap goods tend to be priced in multiples of $0.05 with tax included (or non-taxable item). More expensive goods, like fancier meals, will be charged 7% GST. For cash purchases only, then, prices round down to he nearest 0.05.

Eg, if you bought carrots by weight and they came to $1.14 it rounds down to $1.10 for cash, but a credit card purchase would charge full $1.14. I thought this was a good way of handling things, making it convenient for cash purchases as well as addressing the irrelevancy of small coin values for cashless purchases.
posted by 6550 at 7:42 PM on July 30, 2012 [1 favorite]


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