NAME: GRADE & STRAND:

Business Mathematics

LESSON 11: Mathematics of Buying and Selling: Commissions

WHAT I NEED TO KNOW?

In this lesson, you will be able to:
 Illustrate the different types of commissions.
 Compute commissions on cash basis and commission on instalment basis.
 Compute down payment, gross balance and current increased balance.
 Solve problems involving commissions.

WHAT’S IN?

Some companies pay their people a straight salary, while others compensate their
salespeople through sales commission. Commission is the amount of money a salesperson
receives based on the level of his or her sales. This amount is based on an agreed
percentage of the revenue the salesperson has brought in through his or her sales. Some
companies pay commissions to their salespeople based on the latter’s gross profit rather
than on gross sales to make sure that these companies maintain the profitability of their
products or services. This is known as the straight commission. Other companies combine
salary with commission.

The amount of percentage salespeople receive may vary from the product to product
and may depend on the level of their sales. Payment of commissions is commonly practiced
in real estate marketing. Commissions are paid to motivate salespeople to sell more
because the bigger the revenue through their sales, the bigger the commission would be.

WHAT’S NEW?

Answer the word problem.

Kiza, a beauty product agent, was able
to sell beauty products worth P48,000.
Given that her commissions rate is
15%, how much will she receive if her
earnings are based on commission
alone?

WHAT IS IT?

A commission is a way of
compensation mainly used to pay
employees who sell company’s
commodities or services. There are
several types of commission such as Figure 1 https://iconscout.com/icon/commission-2157222
straight commission, incremental

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commission, salary with commission, commission with bonus, and commission with
override.

Straight Commission
It is a type of commission wherein the salesperson’s earning or wage is based on
his/her commission alone.
Formula;
Commission = Commission Rate x Amount of Sales
Commission
Amount of Sales=
commission Rate
Commission
Commission Rate=
Amount of Sales
Example: A real estate agent has a commission rate of 4%. If the piece of property sells for
P740,000, what is his commission?

Solution:
Given: Commission Rate = 4% = 0.04 Amount of Sales =
P740,000

Commission = Commission Rate x Amount of Sales

= (0.04)(740,000)
= P29,600

Example: if the commission on the sale of P16,950 worth of clothes is P1,271.25, what is
the commission rate?

Solution:
Given: Amount of Sales = P16,950 Commission = P1,271.25
Commission
Commission Rate=
Amount of Sales
1,271.25
¿
16950
= 7.5%

Example: Melisa Parilla, owner of lending company; paid her collector P3,302 as a
commission at 1.3%. what was the amount of collection?

Solution:
Given: Commission = P3,302 Commission Rate = 1.3% = 0.013
Commission
Amount of Sales=
commission Rate

3,302
¿
0.013

= P254,000
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Incremental Commission or Graduated Commission
Is a commission given to salesperson who do not receive a regular salary and
commission rate increases as the sales volume increases. Incremental commission has a
greater incentive method on compensation than straight commission whereby higher levels
of sales earn increasing rates of commission.

Example: Evelyn sells a projector for ASS Tech Products. She is on incremental
commission schedule of 2.5% sales up to P100,000, 3% for the next P150,000 and 4% on
the sales greater than P250,000. What is Evelyn total gross pay for the last month if her
sales volume was P300,000?

Solution:
Given: Commission Rate (level 1) = 2.5% = 0.025
Commission Rate (level 2) = 3% = 0.03
Commission Rate (level 3) = 4% = 0.04

Using an incremental commission schedule, we determine the pay for each level and then
get the sum of all levels.

Level Pay = Sales per Level x Commission Rate

Level 1 = 100,000 x 0.025 = 2,500
Level 2 = 150,000x 0.03 = 4,500
Level 3 = 50,000 x 0.04 = 2,000
Total Gross pay = Level 1 + Level 2 + Level 3
= 2,500 + 4,500 + 2,000
= P9,000

Salary plus Commission

It is when an employee is being paid a guaranteed salary plus a commission on total
sales made by the employee. To compute for the total gross pay, determine the amount of
commission then add it to the salary.

Example Mr. See works on a pay schedule of P21,300 per month plus 3% commission on
all sales. If he sold P104,900 last month, what is Mr. See total gross pay?

Solution:
Given: Salary = P21,300 Commission Rate = 3% = 0.03 Amount of
Sales = P104,900
Commission = Commission Rate x Amount of Sales
= (0.03) (104,900)
= P3,147

Now that we already obtained the commission we can now determine the total gross pay.
Gross Pay = Salary + Commission
= 21,300 + 3,147
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 = P24,447

Commission and Bonus

It is when a salesperson is given a bonus if he/she exceeds his/her sales quota. In
case that the sales do not exceed the prescribed quota by the company, the salesperson
will not receive any bonus.

Example: Mrs. Yu receives a basic salary P13,750 a month. She also receives a bonus of
5% of the amount by which she goes beyond her quota of P75,000. For the month of March,
her sales amounted to P128,000. What were his/her total earnings?

Solution:
Given: Commission Rate = 5% = 0.05 Salary = P13,750
Sales subject to commission = P128,000 – P75,000 = P53,000

Commissions = Commission Rate x Amount of Sales

= (0.05) x (13,750)
= 2,650

Gross Pay = Salary + Commission

= 13,750 + 2,650
= 16,400

Commission with Override

It is when a salesperson earns commission on his/her owned sales and also earns
commissions form the sales of his/her representatives.

Example: Tere receives a 6% commission on her sales. She supervises 12 sales

representatives and receives override on all their sales. The representatives made sales of
P48,300 and she made of P9,400. What were her earnings?

Solution:
Given: Commission Rate = 6%
Amount of Sales (by Tere) = P9,400
Commission Rate on Representative = 2.5%
Amount of Sales (by Representative) = P48,300

Computation of Tere’s commission based on her own sales:

Commission 1 = Commission Rate x Amount of Sales
= (0.06)(9,400)
= 564

Computation of Tere’s commission based on her representative sales:

Commission 2 = Commission Rate x Amount of Sales

= (0.025)(48,300)
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 = 1,207.50

Total Commission = Commission 1 + Commission 2

= 564 + 1,207.50
= P1,771.50

Thus, Tere’s total Commission is P1,771.500

SEATWORK
On a ½ crosswise, answer the following word problem also please show your
solution.Then, write on the space provided which type of commission they are belong.
.
1. ________________________________ Mr. Nicolas is paid a basic salary of
P20,000 a month plus 9.5% commission on all sales made. Compute for his gross
earnings.
2. ________________________________ Mrs. Tan received 10% commision on the
product he sold plus 2.5 commission of the sales made by the representatives under
his supervision. If her sales amounted to P28,000 and sales made by his 18
representatives amounted to P73,000, how much did he earn?

3. ________________________________ Mr. Young a salesman is paid 2.5%

commission rate on the first P12,000; 3.5% on the next P15,000 and 6.5% on all
sales over P25,000. Last month, his total sales were P64,000. Find the total
commission

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