Business Mathematics – ABM 209

Week 1: FRACTIONS 2
Step 1: Reciprocal: 7
terms 3 2 6
Step 2: 4 x 7 = 28
✓ Fraction: one or more of the equal parts into which a 6 2 3
whole is divided (or simply a ratio of two numbers) Step 3: ÷ =
28 2 14
✓ Numerator: number of equal parts being taken into
consideration Conversion of Fraction to Decimal and Percentage
✓ Denominator: number of equal parts into which the Fraction to Decimal
1
whole is divided Write 4 as a decimal by performing the division: 1 ÷ 4 =
✓ Proper Fraction: fraction whose numerator is smaller 0.25
than the denominator Decimal to Percent
✓ Improper Fraction: fraction whose numerator is equal Move the decimal point two places to the right and add
or greater than the denominator the percent sign: 0.25 → 25%
✓ Mixed Numbers: consist of a whole number and a
fraction Week 2: DECIMALS, PERCENTAGE, RATIO, AND
PROPORTION
1. Addition and Subtraction of Like Fraction terms
𝑎 𝑏 𝑎+𝑏
Addition: 𝑐 + 𝑐 = 𝑐 ✓ Decimals: fractions with a denominator of 10, 100,
𝑎 𝑏 𝑎−𝑏 1000, or any multiple or power of ten
Subtraction: - =
𝑐 𝑐 𝑐 ✓ Percentage: the variable in the percentage formula
2. Addition and Subtraction of unlike fraction that represents a part of the base
1 1
Example: 4 + 6 ✓ Ratio: a way of expressing the relationship of a
• Find prime factors of the denominators: number, quantity, substance, or degree between
4= 2 × 2, 6 = 2 × 3 two similar components
• Find LCM (Least Common Multiple): ✓ Proportion: a way of expressing the comparative
Use all prime factors: 2 × 2 × 3 = 12 relationship between a part, share, or portion
This is the LCD (Least Common Denominator) with regards to measurement, amount, or number
• Make equivalent fractions with LCD:
1 3 1 2 1. Addition and Subtraction of Decimal
= and =
4 12 6 12
Addition and Subtraction of Decimal
• Add the numerators
3 2 5 Steps in Adding and Subtracting Decimals
+ = a. Write the numbers so that the decimal points align.
12 12 12
3. Multiplication of Fraction b. Start adding or subtracting digits form right to left.
Steps in Multiplying Fraction: c. Align the decimal point in the answer with respect to
a. Multiply the numerators to form a new numerator. the decimal points of the given.
b. Multiply the numerators to form a new numerator. Example: Addition
c. Reduce the answer in simplest form. 80.23
5 7 5𝑥7 35
x = = 36.52
8 6 8𝑥6 48
Steps in Multiplying Mixed Fraction: 72.001
a. Convert each mixed number to an improper fraction. 22.843
b. Multiply the numerators to form a new numerator. ₱211.594
c. Multiply the denominators to form a new Example: Subtraction
denominator. 1,350.83
d. Express the answer as a mixed number or as proper 1,242.69
fraction in simplest form. ₱108.14
3 1 2. Multiplication of Decimals
Example: 24 x 3 3
(4𝑥2)+3 (3𝑥3)+1
Steps in Multiplying Decimals
11 10
Step 1: 4
+ 3
= 4 x 3
a. Multiply numbers as if they are whole numbers
11 10 110 without regard to the decimal points.
Step 2 and 3: 4
x 3
= 12
110 1 b. Count the total number of decimal places in the
Step 4: 12 = 96 multiplier and multiplicand.
4. Division of Fraction c. Place the decimal point so that the product has the
Steps in Dividing Fraction same number of decimal places as totaled in
a. Find the reciprocal of the divisor. step 2.
b. Multiply the dividend by the reciprocal of the divisor. ₱105.28 →2 places to the right of the decimal point
c. Express the answer as a mixed number or as proper x 9.62 →2 places to the right of the decimal point
fraction in simplest form. 21056
3 7
Example: 4 x 2 63168

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 94752 The value of the ratio in mathematics may be expressed
₱1012.7936 → 2 + 2 = 4 places to the right of the in terms of the quotient or decimal, which can be
decimal point obtained by performing the indicated division of the
3. Division of Decimals numerator by the denominator. The numerator is called
Steps in dividing decimals: the antecedent and the denominator is called the
a. Make the divisor a whole number by moving the consequent.
decimal point to the right. Example:
b. Move the decimal point in the dividend to the right Find the ratio of Achaiah’s savings of ₱56,400 to Sofia’s
with the same number of places as the divisor. savings of ₱40,000.
c. Place the decimal point in the quotient directly above Achaiah′ s Savings 𝑃 56,400 141 141
Sofia′ s Savings
= 𝑃 40,000 = 100 therefore, the ratio is 100
the decimal point.
d. Divide as usual. Proportion
Example: 3784.15 ⟌56762.25 The four terms of proportion are: the means (inner
Move the decimal places to the right, making it a whole numbers) and extremes (outer numbers).
number. 15 Direct Proportion
378415 ⟌5676225 A direct proportion is when an increase in one quantity
5676225 results to an increase in another quantity and
Answer: 15 a decrease in one quantity results to a decrease in
another quantity. The equation of the form y = kx
Percentage, Ratio and Proportion (k is constant) describes y varies directly as x.
P=R×B Example:
𝑃 Isabel bought 9 tickets to an international product
R=𝐵
exposition for ₱2,025. How many tickets could she
𝑃
B=𝑅 purchase with ₱3,825?
9 x
Steps in solving percentage problem = → 2,025x = 9(3,825) →2,025x = 34,425 →
2,025 3,825
1. Determine the two given values and the unknown 2,025x 34,425
= → x = 17
variable. 2,025 2,025
2. Choose the appropriate formula to solve for that B. Inverse Proportion
unknown. An inverse proportion is when an increase in one
3. Solve the equation by substituting the values of the quantity results to a decrease in another quantity. The
𝑘
given variables. equation of the form y = 𝑥 (k is constant) describes y
Examples: varies inversely proportional as x.
1. RFS Metal Industries has 1,600 employees, 60% Example:
constitutes the production staff. How many employees The length (L) of the rectangle of fixed are varies
are in production? inversely as the width (W). If the length of the
Given: Base = 1,600 Rate = 60% = 0.6 rectangle is 10 feet when the width is 4 feet, find the
Percentage = Rate x Base length of the rectangle if the width is 8 feet.
= 60% x 1600 10ft 8ft 8x 40ft
= 4ft → 8x = 40ft → 8 = 8 → x = 5ft
= 0.60 x 1600 x
Percentage = 960 Partitive Proportion
2. Of the 30 employees who started a promotional A partitive proportion involves identifying parts of a
training program, 12 dropped out. What was the whole based on a given ratio of these parts or in other
dropped-out rate? words when the whole is partitioned into two or more
Given: Base = 30 Percentage = 12 equal parts or unequal parts.
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 Example:
Rate = 𝐵𝑎𝑠𝑒
A certain company has overhead cost of ₱133,434 last
12
= 30 week. What portion of the overhead should sales,
= 0.4 x 100% advertising, and operations department receive if they
Rate = 40% share in the ratio of [Link], respectively?
3. Payroll deductions comprise 35% of Reina’s gross 4x + 6x + 11x = 133,434
income a month. If the deduction total ₱6,860, what 21x = 133,434
is her gross income? X = P 6,354
Given: Rate = 35% Percentage = ₱6,860
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 4x = 4(P6,354) = P 25,416 (sales department)
Base = 𝑅𝑎𝑡𝑒
6860 6x = 6(P6,354) = P 38,124 (advertising department)
= 11x = 11(6,354) = P 69,894 (operations department)
0.35
Base = ₱19,600
Week 3: MARKUP, MARGIN AND MARKDOWN
Ratio and Proportion terms
Ratio ✓ Cost: price a merchandising business or retailer pays
for a product

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✓ Selling price (retail price): price for which a 70,265
RP = 100%−20%
merchandising business or retailer sells a product to a 70,265
RP =
customer 80%
70,265
✓ Markup: difference between the selling price and cost RP = 0.80
✓ Markup rate: percent form of markup RP = P 87,831.25
✓ Margin (gross margin): defined as sales minus cost of 3. If an item with a selling price of ₱7,800 is to be
goods sold sold for ₱6,474. Find the markdown.
✓ Gross margin ratio: ratio of gross margin expressed as Given: RP = ₱7,800 S = ₱6,474
percentage of sales Derive a formula using the original formula
✓ Markdown: price reduction from the original selling S = RP – Md → Md = RP – S
price of merchandise Md = 7,800 − 6,474
Md = 1,326
✓ Markdown cancellation: raising prices to the original
4. Sofia has some shirts in her boutique that has
price after sale
not been sold. She decides to mark them down
✓ Sale price: the new price of a product after it has
from ₱850 to ₱552.50. What percentage did she
been marked down
mark them down?
Given: RP = ₱850 S = ₱552.50
Formulas: Md
SP = C + Mu SP = C x (1 + MRc) Formula: MdR = RP
Mu = SP – C Mu = MR x C Md = RP – S → Derived formula from S = RP – Md
Mc = MRc x C Mc = SP – C Md = ₱850 − ₱552.50
MSP = MRSP x SP MRSP = MSP/SP Md = ₱297.50
SP ₱297.50
C = 1+MR GMr = Mu/SP MdR = ₱850
GM = SP – C MdR = 0.35 or 35%
Equivalent Markup Percentages
A single item can have two different markups, Week 4: TRADE DISCOUNT, DISCOUNT SERIES, AND
depending on the basis of the markup, selling price, PROFIT AND LOSS
and cost. To determine the equivalent markup for the terms
selling price and cost, we have to apply the following: ✓ Trade Discount: reduction from the list price
✓ List Price (manufacturer’s suggested retail price):
a. If the percentage of markup on selling price is given, suggested price of an item
divide it by 100% minus itself to determine the ✓ Net Price: amount a business pays for the
percentage of cost markup. merchandise after the discount
%C Markup = %Selling Price Markup ÷ (100% − %Selling ✓ Single Trade Discount: a discount given to purchases
Price Markup) on a one – off basis
b. If the percentage of markup on cost is given, divide it ✓ Discount Series: type of discount in which several
by 100% plus itself to determine the percentage of discounts are given to a buyer at different times
selling price markup. depending on the fulfillment of some conditions
%SP Markup = %Cost Markup ÷ (100% + %Cost Markup)
✓ Profit: the difference between revenue and cost
Markdown ✓ Loss: when profit is negative
Formulas:
Md = RP × MdR S = RP − Md Formulas:
Md S Trade Discount = List Price × Trade Discount Rate
MdR = RP = Trade Discount
RP 100%−MdR Trade Discount Rate =
Examples: List Price
Trade Discount
1. What are the markdown and the sale price on List Price =
Trade Discount Rate
an antique jar that has a regular price of Net Price = List Price – Trade Discount
₱35,800 and is on sale for 26% off the regular
price? Examples:
Given: RP = ₱35,800 MdR = 26% = 0.26 1. Find the net price of a shirt listed at ₱925. The retailer
Md = RP × MdR S = RP − Md is granted a 20% trade discount.
Md = 35,800 × 0.26 S = 35,800 − 9,308 Given: List Price = ₱925 Trade Discount Rate = 20%/0.20
Md = ₱9,308 S = ₱26,492 Net Price = List Price − Trade Discount
markdown is ₱9,308 sale price is ₱26,492 (Since trade discount is not given, find first the trade
2. An old LED TV model which has marked down at discount)
20% is on sale for ₱70,265. Find the regular
price. Trade Discount = List Price × Trade Discount Rate
Given: MdR = 20% =0.20 S = ₱70,265 Trade Discount = ₱925 × 0.20
S Trade Discount = ₱185
RP =
100%−MdR

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Net Price = List Price − Trade Discount 2,750
Retail Price = 0.57375
Retail Price = ₱4,793.03
Net Price = ₱925 − ₱185 3. A shoe store bought a display stand at ₱6,800 less
Net Price = ₱740 20%, 15%, 10%, and 5%. What was the net price?
Given: Retail Price = 6,800 DR1 = 20% DR2 = 15% DR3 =
2. A retailer paid ₱991.20 less for a bill of goods 10% DR4 = 5%
amounting to ₱3,540 after he was allowed a trade Net Price = [(100% − DR1)(100% − DR2)... (100% − DRn)] ×
discount by the wholesaler. What was the rate of the
Retail Price
trade discount? Net Price = [(100% − 20%)(100% − 15%)(100% −
Given: Trade discount = ₱991.20 List Price = ₱3,540 10%)(100% − 5%)] × ₱6,800
Trade Discount
Trade Discount Rate = List Price Net Price = [(80%)(85%)(90%)(95%)] × ₱6,800
₱991.20 Net Price = [(0.80)(0.85)(0.90)(0.95)] × ₱6,800
Trade Discount Rate = 3,540
Net Price = 0.5814 × ₱6,800
Trade Discount Rate = 0.28 × 100%
Net Price = ₱3,953.52
Trade Discount Rate = 28%
3. After the reduction of a trade discount rate of 20%
PROFIT AND LOSS
from a product, it was less ₱12,000. What was the list
Profit/Loss = Total Revenue − Total Cost
price? Profit/Loss
Given: Trade discount rate =20% = 0.20 Trade Discount Profit/Loss Percent = Cost x 100%
= ₱12,000 If markup is greater than operating expenses, net profit
Trade Discount is achieved. However, if markup is less than operating
List Price =
Trade Discount Rate expenses, loss is incurred. If the retail price just covers
₱12,000
List Price = 0.20 the cost price and the operating expenses, then it does
List Price = ₱ 60,000 not make any profit nor incur any loss.

Discount Series (multiple discounts) can be converted to Formula: Retail price = Cost + Net profit + Operating
a single equivalent discount rate (SEDR), expenses or R = C + NP + OE
which will give the same total discount as the discount
series when taken separately rather than computing it Example: 1. Assume that you are in a business of buying
one at a time. and selling business. You bought 10 pairs of running
Formula: SEDR = 1 − [(100% − DR1)(100% − shoes for ₱3,500 each from the wholesaler at the start
DR2)...(100%− DRn)] of December. Then, you plan to sell these pairs of
Net Price = [(100% − DR1)(100% − DR2)... (100% − DRn)] × running shoes online to your friends before Christmas
Retail Price and you were able to sell 7 pairs at ₱5,000 each.
However, after Christmas, you have 3 pairs left unsold.
Examples: You thought of selling the remaining pairs at ₱2,500
1. Calculate the single equivalent discount and amount each to ensure that you have sold all items before New
of trade discount on merchandise listing for Year. Determine whether you earn a profit or incurred
₱20,000, less trade discounts of 30%, 10%, and 5%. loss. Provide how much your profit or loss was.
Given: DR1 = 30% DR2 = 10% DR3 = 5% List Price =
₱20,000 Given: Number of pairs of running shoes = 10, Cost per
SEDR = 1 − [(100% − 30%)(100% − 10%)(100% − 5%)] pair = ₱3,500, Total cost of 10 pairs of running shoes =
SEDR = 1 − [(70%)(90%)(95%)] 10 × 3,500 = 35,000, Selling price = ₱5,000, Sale price =
SEDR = 1 − [(0.70)(0.90)(0.95)] ₱2,500, Sold pair = 7 pairs at ₱3,500 & 3 pairs at ₱2,500
SEDR = 1 − 0.5985
SEDR = 0.4015 × 100% Before Christmas
SEDR = 40.15% Revenue = 7 × ₱5,000 = ₱35,000
Trade discount = List Price × Trade Discount Rate Cost = 7 × ₱3,500 = ₱24,500
Trade discount = ₱20,000 × 0.4015 Profit/Loss = Total Revenue − Total Cost
Trade discount = ₱ 8,030 Profit/Loss = ₱35,000 − ₱24,500
2. A perfume manufacturer wishes to sell a bottle of Profit = ₱10,500
spray perfume at a net price of ₱2,750 after a discount After Christmas
series of 25%, 15%, and 10%. What should the Revenue = 3 × ₱2,500 = ₱7,500
suggested retail price be on the package? Cost = 3 × ₱3,500 = ₱10,500
Derive the formula: Net Price = [(100% − DR1)(100% − Profit/Loss = Total Revenue − Total Cost
DR2)(100% − DR3)] × Retail Price → Retail Price = Profit/Loss = ₱7,500 − ₱10,500
Net Price/[(100%−DR1)(100%−DR2)(100%−DR3)] Loss = (₱3,000)
2,750
Retail Price = Total Profit
(100% − 25[%)(100% − 15%)(100% − 10%)]
2,750 Profit (Before Christmas) = ₱10,500
Retail Price = (75%)(85%)(90%) Loss (After Christmas) = (₱3500)
2,750 Total Profit = ₱7,500
Retail Price = (0.75)(0.85)(0.90)

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 Profit/Loss estimated that the average daily output per worker is
Profit/Loss Percent = Cost
x 100%
₱7,500 70 paperweights. The cost of the material is
Profit/Loss Percent = ₱35,000 x 100% estimated at ₱44 per paperweight. Fixed costs for this
Profit/Loss Percent = 0.2142857143 × 100% operation are estimated to be ₱6,000,000 a
Profit Percent = 21.43% year.

WeeK 5: BREAK-EVEN ANALYSIS a. What is the break-even point of the company in

terms of the number of paperweights per
✓ Break-even analysis: the determination of the year?
number of units that must be produced and sold to 420
equate a total sales with total cost Solution: Labor Cost = = ₱6
✓ Break-even point (BEP): the volume of the sales for Given: 70
which total sales equals total costs where Selling Price = ₱125 Variable Cost = Material Cost +
profit is equal to zero Labor Cost = ₱6 Labor Cost
Variable Cost = ₱50 Variable Cost = 44 + 6
COMPONENTS OF BREAK-EVEN ANALYSIS Variable Cost = ₱50

1. Volume - The level of production by a company,

which is expressed as the number of units (quantity)
produce and sold. Fixed Cost = ₱6,000,000
2. Profit. The difference between total sales and total
cost or the income generated by the sale of a x = number of paperweights sold per day
product.
3. Cost. The usual number of different costs that must Formula
be considered to determine profit. TR = (SP)(x) TC = FC + VC (X)
a. Fixed Cost. It is a cost that is independent of the TR = TC (Break - even Point)
volume of units produced. It will remain the
same regardless of the volume of the sales. (e.g., rental, SP(X) = FC + VC (X)
management salaries, some forms of FC Derived formulal to find the value
depreciation, property taxes, etc.) X= of x Substitute
b. Variable Cost. It is a cost that is determined on a per- SP - VC
unit basis. It grows in direct proportion 6,000,000
to the volume of the sales. (e.g., material cost, direct X=
labor cost in manufacturing, utilities 125 - 50
directly affecting production, etc.) 6,000,000
X=
The following notations will be used for Break-even 75 Thus, the number of paperweights
Analysis: X = 80,000 sold per day is 80,000

X = volume of output FC = Fixed Cost

P = Profit TC = Total Costs Checking
SP = Selling Price TR = Total Revenue TR = (SP)(X) TC = FC +VC (X)
VC = Variable Cost BEQ = Break - even quantity TR = (125)(80,000) TC = 6,000,000 + 50(80,000)
TR = = ₱ 10,000,000 TC = = ₱ 10,000,000
Formula: Total Cost
TC = FC + VC (X) Total Revenue As shown in Figure 4.1, the point at which the total
TR = SP (x) Break - even revenue (TR) line and total cost (TC) line intersect
is the break-even point, which is where they are equal.
TR = TC Volume of output/number of units
FC
X=
SP - VC

Examples:

Example:
1. The Glass Company produces paperweights for
export to Japan. The company sells these paperweights
to major retail chains for ₱125 each. The workers in the
factory are paid of ₱420 a day, and it is

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 ✓ Approximate Time: assuming that each month has 30
days
✓ Mortgage – loan: provided by a mortgage lender or a
bank – that enables an individual to
purchase a home or property
✓ Down payment: first payment that one pays with an
agreement to pay the rest later
✓ Amortization of loan: repayment of a loan by
periodic payments, with the possible
exemption of the last payment, equal in amount
✓ Amortization period: lengt h of time over which a
loan is scheduled to be fully repaid, after
two parties agree on the amount of a loan, the rate of
b. If the company sold 150,000 paperweights last year, interest, and the repayment frequency
how much profit (loss) did it have for a
✓ Amortization schedule: of several periods of
year?
payments, showing the principal and the
Solution:
interest parts of those payments and the outstanding
balance after each payment is made
Profit/Loss = TR − TC
Profit/Loss = SP(x) − [FC + VC(x)]
P = Principal amount of the loan or investment
Profit
r = Annual rate of simple interest
Loss = ₱125(150,000) − [₱6,000,000 + ₱50(150,000)]
t = Time period (term) of the loan or investment
Profit/Loss = 18,750,000 − (₱6,000,000 + ₱7,500,000)
I = Amount of interest paid or received
Profit/Loss = ₱18,750,000 − ₱13,500,000
F = Maturity value of the loan or investment
Profit = ₱5,250,000 *it is profit since the final answer is
positive
Simple Interest Formula:
I
The company will generate a profit of ₱5,250,000 if they
I = Prt P=
produce and sell 150,000 units of a paperweights. (refer
rt
to figure 4.2)
F=P+I F = P (1 + rt)

A. Actual and Approximate Time

The time period t should be determined using the

number of days involved. There are two ways of
determining the time period. It may be approximate or
actual time. Approximate Time uses 30
days in every month, while the actual time uses the
exact number of days in every specific month
as shown in the table above.

Example 1: Determine the actual time and approximate

time from March 03, 2015, to September 10,
2015.
Week 6-7: INTEREST, MORTGAGE AND AMORTIZATION
Study these terms Solution:

✓ Simple Interest: amount paid or earned for using

money
✓ Principal: amount of money borrowed or invested on
the origin date
✓ Rate: annual rate, usually in percent, charged by the
lender, or rate increase of the
investment
✓ Interest: amount paid or earned for the use of money
✓ Actual Time: determine by counting everyday
excluding the loan date until the maturity date There are 191 days in actual time, while 187 days in
approximate time.

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B. Exact and Ordinary Interest lowest generated interest is exact interest using
approximate time.
Exact interest is computed in 365 days in a year as the
time factor denominator. On the other hand, ordinary MORTGAGE AND AMORTIZATION
interest is a type of interest wherein the number of days Consumer credit nowadays is not just a service to
is computed based on 360 days customers but an income generation to a company.
in a year. Banks and most other institutions still use Companies give interest or finance charge for the credit
ordinary interest because it yields somewhat used by the consumers. The two common types of
higher interest as compared to exact interest method. If loan are consumer loan and business loan. A consumer
the type of the interest is not specified in loan is given to retail customers or individuals for
the problem, the problem will be solved using the personal purposes. On the other hand, business loan is
Banker’s Rule or ordinary interest in actual time. lent to companies or business to finance their business
operating costs like corporate loan, commercial loan,
Number of days of a loan small-and-medium enterprise loan, among others.
Exact Interest: Time = Another type of loan is mortgage. Mortgage is a loan –
365 provided by a mortgage lender or a bank –
Number of days of a loan that enables an individual to purchase a home or
Ordinary Interest: Time = property. In mortgage, the property itself serves as
360 collateral for the loan.

Example 1: Find the interest on ₱28,700 at 7.3% from

March 14, 2016 to August 16, 2016 using the
following
a. ordinary interest using actual time
b. ordinary interest using approximate time
c. exact interest using actual time
d. exact interest using approximate time

Solution:
Given: P = ₱28,700 r = 7.3% = 0.073

The first step is to determine the approximate time and Example 1: You wish to purchase a land worth ₱750,000
actual time of the term, then compute for the and the seller requires 20% down payment. Then you
exact and ordinary interest. will loan the balance from a bank that charge 6% annual
interest rate to be paid for 1 year.
a. How much is the down payment?
b. How much is the mortgage loan?
c. How much is the monthly amortization?
d. How much is the total interest?
e. Create an amortization table.

a. ordinary interest using actual time

Thus, ordinary interest using actual time or Banker’s

Rule provides the highest interest, while the

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 Given:
Commission Rate = 3.8% = 0.038 Amount of Sales =
?
Amount per Unit = ₱200,000
Number of Units Sold = 15

Solution:
Total Amount of Sales = No. of Units Sold × Amount per
Unit Formula
Total Amount of Sales = 15 × ₱200,000 Substitute
Total Amount of Sales = ₱3, 000, 000

Example 2: If the commission on the sale of ₱16,950

worth of clothes is ₱1,271.25, what is the commission
rate?

Given:
Week 8: COMMISSIONS Amount of Sales = ₱16,950 Commission =₱1,271.25
Study these terms
Solution:
✓ Commission: way of compensation mainly used to
pay employees who sell company’s commodities or Commission Rate = Comission Formula
services Amount of Sales
Substitute
✓ Straight Commission: type of commission wherein
Commission Rate = ₱1,271.25
the salesperson’s earning or wage is based on his/her
₱16,950
commission alone
✓ Incremental commission (or Graduated
Commission Rate = 0. 0075 = 7. 5%
commission): commission given to sales person who do
not receive
Thus, the commission rate is 7.5%.
a regular salary and their commission rate increases as
the sales volume increases
Example: Evelyn de Guzman sells OHP projectors for
✓ Salary plus commission: employee is being paid a WSS Tech Products. She is on incremental commission
guaranteed salary plus a commission on total sales schedule of 2.5% of sales up to ₱100,000, 3% for the
made next ₱150,000 and 4% on the sales greater than
by the employee ₱250,000. What is Evelyn’s total gross pay for the last
✓ Commission and bonus: a salesperson is given a month if her sales volume was ₱300,000?
bonus if he or she exceeds his or her sales quota
✓ Commission with override: a salesperson earns B. Incremental Commission (or Graduated
commission on his/her own sales and also earns Commission)
commission
from the sales of his/her representatives Given:
✓ Draw against Commission: a salesperson is being Commission Rate (Level 1) = 2.5% = 0.025
paid in advanced of sales and later deducted from the Sales 1 = ₱100,000
commission earned Commission Rate (Level 2) = 3% = 0.03
Sales 2 = ₱150,000
A. Straight Commission Commission Rate (Level 3) = 4% = 0.04
Sales 3 = ₱50,000
Example 1: Gabriel works on commission basis and
receives 3.8% on his monthly sales for St. Peter Life Plan Solution:
without a base salary. What is his commission during a Level Pay = Sales per Level × Commission Rate Formula
month when he sells 15 units of life plan worth Level 1 Pay = ₱100,000 × 0.025 For the first ₱100,000
₱200,000 per unit? Level 1 Pay = ₱2, 500

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Level 2 Pay = ₱150,000 × 0.03 For the next ₱150,000 receives a 2.5% override on all their sales. The
Level 2 Pay = ₱4, 500 representatives made sales of ₱48,300 and she made
sales of ₱9,400. What were her earnings?
Level 3 Pay = ₱50,000 × 0.04 For more than ₱250,000
Level 3 Pay = ₱2, 000 Given:
Commission Rate (Teresita) = 6% = 0.06
Total Gross Pay = Level 1 + Level 2 + Level 3 Formula Commission Rate (Representatives) = 2.5% = 0.025
Total Gross Pay = ₱2,500 + ₱4,500 + ₱2,000 Substitute Amount of Sales (Representatives) = ₱48,300
Total Gross Pay = ₱9, 000 Amount of Sales (Teresita) = ₱9,400
Thus, Evelyn’s total gross pay is ₱9,000.
Solution:
C. Salary Plus Commision Computation of Teresita’s Commission based on her
own sales
Example: Janey dela Fuente works on a pay schedule of Commission = Commission Rate × Amount of Sales
₱21,300 per month plus a 3% commission on all Commission = 0.06 × ₱9,400
sales. If she sold ₱104,900 last month, what is her total Commission 1 = ₱564
gross pay?
Computation of Teresita’s Commission based on her
Given: representative’s sales
Salary = ₱21,300 Commission Rate = 3% = 0.03 Commission = Commission Rate × Amount of Sales
Amount of Sales = ₱104,900 Commission = 0.025 × ₱48,300
Commission 2 = ₱1, 207. 50
Solution:
Commission = Commission Rate × Amount of Sales Total Commission = Commission 1 + Commission 2
Commission = 0.03 × ₱104,900 Total Commission = ₱564 + ₱1,207.50
Commission = ₱3, 147 Total Commission = ₱1, 771. 50

Gross Pay = Salary + Commission Formula F. Draw Against Commission

Gross Pay = ₱21,300 + ₱3,147 Substitute
Gross Pay = ₱24, 447 Example: Emmanuel is a salesperson for Sirug
Corporation. The company pays 7.5% commission on
D. Commision and Bonus sales and gives him an ₱8,000 per month draw against
commission. If he receives his draw at the beginning of
Example: Leonora Bautista receives a basic salary the month and then sells ₱160,000 during the month,
₱13,750 a month. She also receives a bonus of 5% of how much commission is owed to Emmanuel?
the amount by which she goes beyond her quota of
₱75,000. For the month of February, her sales Given:
amounted to ₱128,000. What were her total earnings? Commission Rate = 7.5% = 0.075
Amount of Draw = ₱8,000
Given: Amount of Sales = ₱160,000
Salary = ₱13,750 Commission Rate = 5% = 0.05
Sales subject to commission = ₱128,000 − ₱75,000 = Solution:
₱53,000 Commission = Commission Rate × Amount of Sales
Commission = 0.075 × ₱160,000
Solution: Commission = ₱12, 000
Commission = Commission Rate × Amount of Sales
Commission = Commission Rate × Amount of Sales Commission Owed = Commission − Amount of Draw
Commission = 0.05 × ₱53,000 Commission Owed = ₱12,000 − ₱8,000 Substitute
Commission = ₱2, 650 Commission Owed = ₱4, 000

Gross Pay = Salary + Commission Formula sale is made on a cash basis, the salesperson will
Gross Pay = ₱13,750 + ₱2,650 Substitute receive a commission composed of a fixed percentage
Gross Pay = ₱16, 400 on the sale price plus extra payment for closing a cash
sale.
E. Commission with Override

Example: Teresita receives a 6% commission on her Example:

sales. She supervises 12 sales representatives and Mr. Pablo is a sales agent of SB Real Estate Company.
He is paid a 3% commission on sales and an additional ₱

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50,000.00 if it is a cash sale. He sold one condominium withdrawn the next day because it has not cleared yet.
unit with a sale price of ₱ 3,000,000.00. How much is his If your bank passbook currently contains ₱ 30,000, you
commission? may not be able to withdraw the whole amount yet
because your gross balance is only ₱ 25,000 since your
Given: check has not been cleared yet. Thus, gross balance
Commission Rate = 3% = 0.03 refers to what is readily available for you to - use based
Bonus on Cash Sales = ₱30,000 on your bank deposits.
Sale Price = ₱3,000,000
Current increased balance - refers to the total amount
Solution: you have to pay that includes penalties or interest
Commission = (Commission Rate × Sales) + Bonus incurred by unpaid balance from a loan or payment you
Commission = (0.03 × ₱3,000,000) + ₱ 50,000 are supposed to have made but was not able to do so
Commission = ₱90,000 + ₱ 50,000 on time.
Commission = ₱140, 000
Example:
Examples:
Given:
Given: Amount Due = ₱ 99,386.50
Commission Rate = 3% = 0.03 % Minimum Required Payment = 5 %
Sale Price = ₱3,000,000 Financing Charge = 3.4%
Yearly Payment = ₱1,000,000 (₱3,000,000/3)= =
₱1,000,000 Formula
Outstanding Balance = (Amount Due of Prev Month
Solution: −Required Payment of Prev Month)
Year 1 Commission = (Commission Rate × Yearly Total Amount Due for the Month = (1 + Finance Charge)
Payment) x Outstanding Balance
Year 1 Commission = (0.03 × ₱1,000,000) Minimum Required Payment = % Minimum Required
Year 1 Commission = ₱30,000 Payment x Total Amount Due for the Month
Year 1 Commission = ₱30, 000
Base Month (No Finance Charges)
Year 2 Commission = (Commission Rate × Yearly Total Amount Due for the Month = ₱99,386.50
Payment) Minimum Required Payment = % Minimum Required
Year 2 Commission = (0.03 × ₱1,000,000) Payment x Total Amount Due for the Month
Year 2 Commission = ₱30,000 Minimum Required Payment = 0.05 x ₱ 99,386.50
Year 2 Commission = ₱30, 000 Minimum Required Payment = ₱ 4,969.33

Year 3 Commission = (Commission Rate × Yearly 1st Month

Payment) Outstanding Balance= Amount Due of Prev Month-
Year 3 Commission = (0.03 × ₱1,000,000) Required Payment of Prev Month
Year 3 Commission = ₱30,000 Outstanding Balance = ₱ 99,386.50 -₱ 4,969.33
Year 3 Commission = ₱30, 000 Outstanding Balance = ₱ 94, 417.26

Total Commission = Commission Y1 + Commission Y2 + Total Amount Due for the Month= ( 1 + Finance Charge)
Commission Y3 x Outstanding Balance
Total Commission = ₱30,000 + ₱30,000 + ₱30,000 Total Amount Due = (1 + 0.034) + ₱ 94, 417.26
Total Commission = ₱90, 000 Total Amount Due= ₱ 97,627.45

Down payment is a first payment that one makes when Minimum Required Payment = % Minimum Required
one buys something with Payment x Total Amount Due for the Month
an agreement to pay the rest later. Minimum Required Payment = 0.05 x ₱ 97,627.45
Minimum Required Payment = ₱ 4,881.37
Gross Balance refers to the total amount of money a
bank has on deposit before adjusting for uncleared 2nd Month
checks or deposits, as well as reserve requirements. This Outstanding Balance= Amount Due of Prev Month-
is the term used by banks to describe the amount of Required Payment of Prev Month
money available before any adjustment is made for Outstanding Balance = ₱ 97,627.45 - ₱ 4,881.37
deposits in transit, checks that have not been cleared, Outstanding Balance = ₱ 92,746.08
and reserve requirements and interest received from
“float funds”. For example, a check amounting to Total Amount Due for the Month= ( 1 + Finance Charge)
₱5,000 that has been deposited today may not be x Outstanding Balance

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Total Amount Due = (1 + 0.034) + ₱ 92,746.08
Total Amount Due= ₱ 95,899.45

Minimum Required Payment = % Minimum Required

Payment x Total Amount Due for the Month
Minimum Required Payment = 0.05 x ₱ 95,899.45
Minimum Required Payment = ₱ 4,794.97

3rd Month
Outstanding Balance= Amount Due of Prev Month-
Required Payment of Prev Month
Outstanding Balance = ₱ 95,899.45- ₱ 4,794.97
Outstanding Balance = ₱ 91,104.48

Total Amount Due for the Month= ( 1 + Finance Charge)

x Outstanding Balance
Total Amount Due = (1 + 0.034) + ₱ 91,104.48
Total Amount Due= ₱ 94,202.03

Minimum Required Payment = % Minimum Required

Payment x Total Amount Due for the Month
Minimum Required Payment = 0.05 x ₱ 94,202.03
Minimum Required Payment = ₱ 4,710.10

GOOD LUCK!!

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