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Commission Notes

Commission is a percentage of sales paid to employees or companies as an incentive to sell more. There are different types of commission structures: straight commission pays a percentage of total sales; salary plus commission provides a base salary plus a percentage of sales above a threshold; and graduated commission uses varying percentages that change with different sales tiers. Computing commissions can be done on a cash basis for immediate payment or installment basis where the commission is calculated based on partial payments over time. A down payment is an initial payment made when purchasing something on credit, typically a percentage like 20% of the total cost.

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128 views

Commission Notes

Commission is a percentage of sales paid to employees or companies as an incentive to sell more. There are different types of commission structures: straight commission pays a percentage of total sales; salary plus commission provides a base salary plus a percentage of sales above a threshold; and graduated commission uses varying percentages that change with different sales tiers. Computing commissions can be done on a cash basis for immediate payment or installment basis where the commission is calculated based on partial payments over time. A down payment is an initial payment made when purchasing something on credit, typically a percentage like 20% of the total cost.

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ivanjade627
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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Business Mathematics Quarter 2: Module 1

Lesson 1: Commissions
Commission is paid to an employee or company as an incentive to sell more. A commission is generally
a percentage of sales
Commissions are computed as a portion of the net sales. Some companies pay their salespeople based on
straight commissions. The pay of these salespeople is entirely based on the amount of their sales. No sales
means no pay.
Commission rates may be constant for all sales amounts or it may be a variable scaled on the amount of sales.
Types of Commissions
1. Straight commission – This is given when a person is paid a percentage (%) of sales only.
Examples:
a) A stock broker receives a commission of 7% for selling annuities to her clients.
If she sells ₱250,000, how much commission will she earn?
Solution: Since the stock broker receives 7% commission based on sales, she’ll earn:
250,000 × 0.07 = 17,500
Thus, the stock broker will earn ₱17,500 commission.
b) . Harry receives 30% commission on the appliances he sells. If he sells a TV for ₱17,000, a refrigerator for
₱20,000 and a heater for ₱22,000, how much does Harry make in commission?
Solution: Since Harry receives 30% commission based on sales, he’ll earn:
(17,000 + 20,000 + 22,000) × .3 = 17,700
Thus, the Harry will earn ₱17,700 commission.

2. Salary plus commission – This is exactly as it sounds, a person gets paid a salary and a % of sales.
Examples:
a) Christian works as a sales agent for a company and earns a basic monthly salary of ₱8,000 plus 5%
commission on all his sales. If he made total sales of ₱50,000 for the month, how much is his gross pay for the
month?
Solution:
₱50,000 × .05 = ₱2,500
₱2,500(commission) + ₱8,000(salary) = ₱10,500
Thus, the Christian will earn ₱10,500 salary and commission.

b) Harry decides to work for another company that will pay him ₱17,500 per
week and 6% of any sales above ₱150,000. If he sold goods worth ₱284,400,
what is his gross pay?
Solution: ₱284,400 – ₱150,000 = ₱134,400
₱134,400 × 0.06 = ₱8,064 (Commission)
₱8,064(commission) + ₱17,500(salary) = ₱25,564

3. Graduated Commission – This is when percentage (%) changes based on how much someone sells
Examples:
a) Steve works for a company that pays him 1% on the first ₱250,000 sold, 2%
on the next ₱750,000 and 3% on all sales over ₱1,000,000. What is his gross
pay if he sells ₱1,250,000?
Solution: ₱250,000 × 0.01 = ₱2,500
₱1,250,000 – ₱250,000 = ₱1,000,000
₱750,000 × 0.02 = ₱15,000
₱1,000,000 – ₱750,000 = ₱250,000
₱250,000 × 0.03 = ₱7,500
Total: ₱2,500 + ₱15,000 + ₱7,500 = ₱25,000
Thus, Steve will receive a total of ₱25,000 as his commission

Cash vs. Installment


a. Computing Commissions on Cash Basis – This type of commission is
similar to computing straight commissions.
Example 1:
Kevin works at Luna’s watch store. For every cash purchase of a watch, he gets 6.1% commission. In a
particular month, he was able to sell 10 watches costing ₱8,000 each. How much was his total commission for
such cash sales?
Solution:
Total Sales = ₱18,000/watch × 10 watches = ₱180,000
Cash commission = ₱180,000 × 6.1% = 180,000 × 0.061 = 10,980
Thus, Kevin’s total commission is ₱10,980.
b. Commission on Installment Basis – commission is computed based on partial payments upon the agreed
installment method.
Example 2:
At Luna’s store, some items are paid on installment basis through credit cards. Kevin was able to sell 10
watches costing ₱18,000 each. Each transaction is payable in 6 months divided into 6 equal installments
without interest. Kevin gets 2% commission on the first month for each of the 10 watches. Commission
decreases by 0.3% every month thereafter and computed on the outstanding balance for the
month. How much commission does Mike receive on the first month? On the second month? Third? Fourth?
Fifth? Sixth month? At the end of installment period, how much will be his total commission?
Solution:
First month commission: ₱18,000/watch × 10 watches × 0.02 = ₱3,600
Second month commission: ₱15,000/watch × 10 watches × (0.02 – 0.003)= ₱2,550
Third month commission: ₱12,000/watch × 10 watches × (0.017 – 0.003) =₱1,680
Fourth month commission: ₱9,000/watch × 10 watches × (0.014 – 0.003) =₱990
Fifth month commission: ₱6,000/watch × 10 watches × (0.011 – 0.003) =₱480
Sixth month commission: ₱3,000/watch × 10 watches × (0.008 – 0.003) =₱150
His total commission for six months is:
₱2,550 + ₱1,680 + ₱990 + ₱480 + ₱150 = ₱9,450.
Note: The base price of the watch is subtracted by 3,000 for each month since it was
stated in the problem that the price is will be paid in 6 equal payments. Thus
18,000/6 = 3,000.

THE DOWN PAYMENT


Down payment is an initial payment made when something is bought on credit.The down payment is a first
payment that one makes when one buys something with an agreement to pay the rest later.
How do we obtain the down payment?
Example#1:
When one purchases a car or any big item not through cash but installment terms, normally, a certain down
payment is required of the buyer. Car dealers normally require a minimum down payment, which is usually
20% of the total cost of the vehicle purchased. The interest on the remaining balance is then computed
depending on the number of years a buyer would want to amortize the remaining balance. If a car costs
₱1,000,000 and a minimum 20% down payment is required by the company, then the buyer will have an initial
cash out of ₱200,000; that is, 0.20 × 1,000,000 = 200,000. The remaining ₱800,000 will be amortized monthly
and the amount of monthly amortization depends on the number of years the buyer will want to pay the loan.
Normally, buyers prefer a 3-year or 5-year payment period. The lesser the number of years, the lesser the total
amount paid as interest to the loan. But with this arrangement, the monthly amortization will be considerably
higher

GROSS BALANCE
This refers to the total amount of money a bank has on deposit before adjusting for uncleared checks or
deposits, as well as reserve requirements. than when one chooses to pay the balance for longer number of
years.

CURRENT INCREASED BALANCE


This refers to the total amount you have to pay that includes penalties or interest incurred by unpaid balance
from a loan or payment you are supposed to have made but was not able to do so on time.

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