ABM BUSINESS MATHEMATICS READING MATERIALS

FUNDAMENTALS OPERATIONS ON FRACTIONS, DECIMALS AND PERCENTAGE

FRACTION - represents a part of a whole. It consists of numerator and denominator. The

numerator is the number above the line; the denominator is the number below the line.
The line called the “vinculum” indicates division.

COMMON FRACTIONS are also called vulgar fractions. There are three types of
common fractions.
1. PROPER FRACTIONS are fractions that express amounts, which are less than a
unit. As such, the numerator is always less than the denominator.
2. IMPROPER FRACTIONS are fractions that express amounts, which are equal to
or greater than a unit. Hence, the numerator is either equal to or greater than the
denominator.
3. MIXED NUMBERS are numbers that consist of a whole number and a fraction.

SIMILAR FRACTIONS – are fractions with the same denominator.

DISSIMILAR FRACTIONS – are fractions whose denominators are not the same.

ADDITION OF FRACTIONS
 To add similar fractions, we add the numerators and retain the denominator.
Generally, we always reduce fractions to lowest terms.
 We cannot add dissimilar fractions unless we express them in terms of a common
denominator.
 To convert dissimilar fractions into similar fractions, we have to express their
denominators in terms of least common denominator (LCD).
 The Least Common Denominator or LCD is the least or smallest number which the
different denominators can exactly divide. Then we divide the LCD by the
denominators of the concerned fractions and multiply the quotient thus obtained by
the numerators of the concerned fractions.
 Addition of mixed numbers – a mixed number is a whole number and a fraction. To
add mixed numbers we have two methods:
1. First Method – to add mixed numbers add the whole numbers then add the
fractional parts.
2. Second Method – is to change the mixed numbers into improper fractions
and then add.

SUBTRACTION OF FRACTIONS
 To subtract similar fractions, we subtract the numerators and copy the denominator
and reduce the fraction to lowest term, if needed.
 To subtract dissimilar fractions, we convert the dissimilar fractions into similar
fractions and we proceed to the subtraction of similar fraction.
 To subtract a mixed number from another mixed number, we follow the following
rules:

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 a. If the mixed numbers have similar fractional parts, subtract the whole
numbers and then subtract the fractional parts.
b. If the mixed numbers have fractional parts, which are dissimilar, change the
fractional parts into similar fractions and then proceed as in (a) above.
c. If the fraction in the subtrahend is greater than in fraction in the minuend,
convert one unit of the minuend into an improper fraction with the correct
denominator and add this unit to the existing fraction in the minuend.
d. To subtract a mixed number from a whole number, convert one unit of the
minuend into an improper fraction with the same denominator as the
fraction in the subtrahend, thus reducing the whole number in the minuend
by one. Then subtract.

MULTIPLICATION OF FRACTIONS
 To multiply fraction by another fraction, we multiply their numerators to obtain the
numerator of the product then, multiply the denominators to obtain the
denominator of the product and reduce the product to lowest term, if necessary.
 A whole number can be expressed as a fraction with denominator of 1. To multiply
a whole number by a fraction, we multiply the whole number by the numerator of
the fraction, and multiply the denominator of the fraction by 1. If the answer is an
improper fraction, change it into a whole number or a mixed numbers.
 To multiply a mixed number by another mixed number, change the mixed numbers
into improper fractions and then multiply.

DIVISION OF FRACTIONS
 To divide a fraction by another fraction, change the divisor to its reciprocal and
multiply.
 To divide whole number and fractions, multiply the whole number to the reciprocal
of the divisor.
 To divide the mixed numbers, change the mixed numbers to improper fraction and
proceed as in division of common fractions.

CHANGING FRACTION TO DECIMAL AND PERCENT AND VICE VERSA

 To convert fractions into decimals, divide the numerators by the denominator.
 To convert fractions into percent, change the fraction into the decimals and move
the decimal points two places to the right, then affix the percent symbol (%(.
 To change decimals into fractions, we convert the decimal into a fraction with a
denominator in multiples of 10 (10, 100, 1,000, etc.) and then reduce the fraction
into its lowest term.
 To convert decimals into percent, we move the decimal points two places to the right
and affix the percent symbol (%).
 To convert percent into decimals, we move the decimal point two places to the left
(as in dividing by 100) and we drop the percent sign.
 To convert percent into fractions, we first change the percent into decimals and then
change the decimals into fractions and reduce to lowest terms.

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ALIQUOT PARTS – represent fractions. They are the most common fractions (which can
be converted to percent) used in business like ½ is 50%, ¼ is 25%, etc.

The following are aliquot parts. They are very useful for business application and business
students and practioners should as much as possible, try to memorize:

1/2 = 0.50 or 50% 1/6 = 0.167 or 16.7% 1/5 = 0.20 or 20%

1/3 = 0.333 or 33.3% 5/6 = 0.833 or 83.3% 2/5 = 0.40 or 40%
2/3 = 0.667 or 66.7% 1/8 = 0.125 or 12.5% 3/5 = 0.60 or 60%
1/4 = 0.25 or 25% 3/8 = 0.375 or 37.5% 4/5 = 0.80 or 80%
3/4 = 0.75 or 75% 5/8 = 0.625 or 62.5% 7/8 = 0.875 or 87.5%

Fractions, percent and decimals are mathematical concepts applied in business situations
and tasks. Ability to express real-life situations in mathematical ideas and language can
help in making future decisions.

BASE, RATE AND PERCENTAGE

BASE – (B) refers to that number of which a certain number of hundredths is taken. It is
that number to which another number called percentage is compared to obtain the rate. It
is called the base because it is the basis of comparison.

RATE – (R) refers to the number of hundreths taken. It is the result of comparing a
number (percentage which is regarded as the portion or part) to another number (base
which is regarded as the whole). It can be expressed in percent, decimal or fraction.

PERCENTAGE – (P) is the part considered in the quantitative relation to the whole. In
other words; it is the part of the whole. It is the number being compared to another
number (base). It is the result obtained when the rate is applied to the base.

FORMULA:

PERCENTAGE (P) = BASE X RATE or P = B X R

BASE (B) = PERCENTAGE/RATE or B = P/R

RATE (R) = PERCENTAGE/BASE or R = P/B

The rate of increase/(decrease) is equal to: (Q2 – Q1)/Q1

Where Q1 – Original Quantity ; Q2 – New Quantity

RATIO AND PROPORTION

RATIO is the relation between two numbers or two magnitudes of the same kind. The
expressions 1:2 (read as one is to two) ½ and 1 divided 2 indicates ratios. We are actually
comparing or showing the relationship between 1 and 2.

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PROPORTION refers to the equality between ratios.

THREE TYPES OF PROPORTION

1. DIRECT PROPORTION – a number is directly proportionate to another when as
one value increases, so does the other.
2. INDIRECT/INVERSE PROPORTION – a number is indirectly proportionate to
another when as one value increases, the other decreases.
3. PARTITIVE PROPORTION – involves identifying parts of a whole based on a
given ratio of these parts.

BUSINESS APPLICATION
 Partnership use ratio and proportion in their operations, particularly in the division
of profit/losses and capital contribution of partners.
 Individuals pay taxes and business entities and the knowledge of base, rate and
percentage are used. In computing taxes, we multiply the base, be it income, sales
or whatever is being taxed by the taxed rate.
 In accounting and management, financial analysis of the financial statement makes
use of what is termed as vertical analysis, horizontal analysis and ratio analysis.
 Vertical Analysis is concerned with comparison of figures in a single financial
statement. Preparation of common-size financial statements makes use of vertical
analysis. Total assets are used as 100% in the balance sheet and net sales are used
as 100% in the income statement.
 Ratio Analysis is a form of vertical analysis. This is called as such because it is used
to determine certain ratios important in business decision making, like determining
profitability ratios, liquidity ratios, solvency ratios, asset utilization ratios, etc.
 Profitability Ratios show how profitable a firm is and also measures the return or
earnings on investments
 Liquidity/Solvency Ratios are used to gauge ability of a firm to pay its obligations or
debts. Liquidity ratios refer to the ratios used to gauge if the company can meet its
current liabilities, those that need to be paid within the current year. Solvency
ratios are concerned with meeting the long-term obligations of the company, those
maturing in more than one year.
 Horizontal Analysis also known as Trend Analysis refers to comparing figures of
financial statement of one period with the figures of financial statement of another
period. It is called trend analysis because it shows the trend –whether increasing or
decreasing – of certain accounts, say sales or net income.

PARTNERSHIP PROBLEMS
A lot of partnership problems involve the use of percentage, ratio and proportion.
Determining the partner’s share in profit/loss and determining the capital contribution of
partners make use of ratio and proportion.

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BUYING AND SELLING

PRICING
Setting prices is another business application of our knowledge on percentage. In trading
or merchandising firms, thos who do “buy and sell”, meaning what they buy, they sell and
in manufacturing firms, those who buy raw materials, process them and sell the finished
products, and make used of pricing decisions. Setting the right price is important for good
to sell. If the price is too high, the customers may not be able to afford it; if it is set too low,
the company may not be able to to make a profit considering that it is not only the cost of
the product that is to be taken into consideration. There are also the operating expenses,
both administrative and selling, to be considered. The selling price should be able to
absorb the cost and the operating expenses and still give a margin for the company to earn
a profit.

 COST – refers to the purchase price of an article.

 INITIAL MARK-UP OR MARK-ON – refers to the amount added to cost to arrive
at the original selling price. It is sometimes referred to as margin.
 ADDITIONAL MARK-UP – refers to amount added to original selling price to
arrive at a new selling price.
 MARK-UP CANCELLATION – refers to decrease in the new selling price that does
not decrease it below the original selling price.
 MARKDOWN – refers to reduction in original selling price
 MARK-UP BASED ON COST means that the cost is the base and therefore taken
as 100%.

Selling Price 450 150%

Cost (300) (100%)
Mark-up 150 50%

 MARK-UP BASED ON SELLING PRICE means that selling price is the base and
therefore taken as 100%.
Selling Price 450 100.00%
Cost (300) ( 66.67%)
Mark-up 150 33.33%

 If we know the mark-up based on cost (MUcost), we compute for mark-up based on
selling price (MUsp) by dividing the mark-up rate by the selling price rate.

 If we know the mark-up based on selling price (MUsp), we can get the (MUcost) by
dividing the (MUsp) by the cost rate.

PROFIT OR LOSS
PROFIT – is what remains of the selling price (sales) after all costs and expenses had been
deducted.

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COST – means the cost of the product sold or service rendered.

EXPENSES – refer to operating expenses (administrative and selling expenses) and

financial expenses (interest and other finance charges).

LOSS –occurs when the cost and expenses exceed the selling price or sales.

Determining the profit and loss involves a simple addition and subtraction. The revenue is
a plus item. All expenses are minus items and therefore deducted from the revenue. The
result is a profit it is a positive and a loss if it is a negative.

INCOME STATEMENT FOR A TRADING FIRM

A trading or merchandising firm buys good that it sells. Whatever it buys, it sells. If it
buys shoes, it sell shoes and if it buys dresses, it sell dresses.

An income statement is the financial statement that shows the results of operations, that is
if it earns a profit or incurs a loss for a given period of time. Generally, a firm prepares
financial statement on a monthly basis. For tax purposes, it is prepared quarterly and
annually. It details the sales, the cost of sales, the operating expenses and other expense
and/ro other income if any. Below is a sample income statement of a trading firm.

GROSS SALES – refer to the total sales. Sales Discounts and Sales Return and Allowances
are deducted from the gross sales to arrive at the net sales.

COST OF SALES – is the purchase price and other expenses incurred in buying the
products that the business has to sell including the freight-in or transportation of the goods
it buys for resale.

OPERATING EXPENSES are expenses incurred to run the business like rent, supplies,
utilities etc.

OTHER INCOME includes interest income and other incidental income the firm earns like
rent income, if it has a property that it rents out.

OTHER EXPENSES includes interest expense or finance charges financial instution

charge the firm for its servies.

GROSS PROFIT is at times referred to as gross margin. It is net sales minus cost of sales.

OPERATING PROFIT/LOSS is gross profit less operating expenses.

NET PROFIT/LOSS is operating profit plus other income less other expense.

BREAK-EVEN POINT (BEP) is that point where a business neither makes a profit or a
loss. At the break-even point, a business’ revenue is equal to its cost. To determine the
number of units to be sold to break-even, we can assume that: Sales = Variable Cost +
Fixed Cost.

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The BEP in units is computed as follows BEP = Fixed Cost/(Unit Price – Variable Cost)

The BEP in pesos = Unit Price X BEP in units.

VARIABLE COSTS VS FIXED COSTS

The table below summarizes the key difference between fixed and variable costs:
VARIABLE COST FIXED COST
Definition Costs that vary/change Costs that do not change in
depending on the company’s relation to production
production volume volume
When Production Increases Total variable costs increase Total fixed cost stays the
same
When Production Decreases
Examples Direct Materials (i.e. Rent
kilograms of wood, tons of Advertising
cement) Insurance
Direct Labor (i.e. labor Depreciation
hours)

Example : Calculate the Break-even point in sales units and sales pesos from the following
information:
UNIT PRICE P 20.00
VARIABLE COST P 8.00
FIXED COST P12,000.00

Substituting the given values into the formula for breakeven point in sales units, we get:

The BEP in units = Fixed Cost/(Unit Price – Variable Cost)

The BEP in units = 12,000/(20 -8)
The BEP in units = 12,000/12 = 1,000 Units

The BEP in pesos = Unit Price X BEP in units

The BEP in pesos = P 20 X 1,000 units = P20,000.00

TRADE DISCOUNTS
To entice buyers to buy, sellers usually offer trade discount. Trade Discount is a reduction
from list price granted to buyers. Trade discounts could either be single discount or a series
of discounts of, say, 20% or a series of discounts like 10%, 5% and 5%. It is generally
wholesalers who offer trade discounts, but there are also some retailers who offer them.

A single trade discount is easy to calculate because we simply multiply the list price with
the given trade discount. For a series of discounts, the base decreases as we apply the series
of discounts given. If the list price is 1,000.00 and the series of trade discounts given is
10%, 5% and 5%, we first multiply the 1,000 x 10% to get the 100 first discount.
Therefore, our base of 1,000.00 is reduced by 100 discount. For the second discount in the

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series, the base is now 900. (1,000 – 100) which we multiply by the second discount in the
series, which is 5% giving us P45.00. Next we deduct the P45.00 from P900.00 to get
P855.00, which we now multiply to the last discount in the series, which is 5% giving us
P42.75. If we deduct the P42.75 from the P855.00, the net invoice price would be P812.25.

In accounting, trade discounts are not recorded because accounting records reflect only
the net invoice prices, that is, sales and/or purchases are the recorded net of trade
discounts.

SINGLE DISCOUNT
Computing for discounts makes use of our basic percentage formula P= BR, where the
Base is the list price, the Rate is the discount rate, and the percentage is the discount. As
such,
Discount = List Price X Discount Rate
Net Invoice Price (NIP) = List Price - Discount

Example: Compute the discount for an item with a list price of 1,250.00 subject to at 15%
discount. What is its net invoice price?
Given: List Price = 1,250.00
Discount = 15%
Find: A. Discount
B. Net Invoice Price

SOLUTIONS:
A. Discount = List Price X Discount Rate
= 1,250.00 X 15%
= 187.50
B. Net Invoice Price = List Price – Discount
= 1,250.00 – 187.50
= 1,062.50

Another way of computing for the net invoice price is to multiply the list price by the net
invoice price rate. The net invoice price rate is equal to 100% less the discount rate.

Net Invoice Price (NIP) Rate = List Price – Discount Rate

NIP Rate = 100% - 15% = 85%

Net Invoice Price (NIP) = List Price X NIP Rate

= 1,250.00 X 85%
= 1,062.50

To get discount, we deduct the Net Invoice Price from the List Price:
Discount = List Price – Net Invoice Price
= 1,250.00 – 1,062.50
= 187.50

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SERIES OF DISCOUNTS

In certain instances, a seller grants additional discounts other than the discount ordinarily
given by him or her. For instance aside from the regular 10% discount, a seller may grant
a special discount additional discount of 5%. The series of discounts is therefore, 10% and
5%. This is not, however, equivalent to 15% .

Example: Compute for the discount and the net invoice price if an item listed at 1,250.00
is given a 10% and 5% discount. What is its net invoice price?
Given: List Price = 1,250.00
Discount Rate = 10% and 5%
Find: A. Discount
B. Net Invoice Price

SOLUTIONS:
METHOD 1
We first multiply the list price by the first discount rate. To get the second discount,
multiply the difference between the list price and the first discount, and the second
discount rate. We then deduct the second discount from the said difference to get the net
invoice price.

List Price 1,250.00

Less 10% (1,250 X 10%) 125.00
Difference 1,125.00
Less 5% (1,125 X 5%) 56.25
Net Invoice Price 1,068.75

Our total discount is equal to the first discount plus the second discount.
Total Discount = 125.00 + 56.25 = 181.25

METHOD 2
Deduct the first discount rate from 100% and multiply the list price by the rate obtained.
Deduct the second discount rate from 100% and multiply the first balance obtained by the
second balance rate obtained.

List Price 1,250.00

1st Balance Rate (100% - 10% = 90%) X 90%
First Balance 1,125.00
2nd Balance Rate (100% - 5% = 95%) X 95%
Net Invoice Price 1,068.75

This method involves a process similar to the used of the net invoice price rate (NIP rate)
applied to the list price to get the net invoice price. Our discount is still equal to the list
price less the net invoice price.

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Discount = List Price – Net Invoice Price
= 1,250.00 – 1,068.75 = 181.25

METHOD 3
Using this method, we will convert the series of discounts to a single equivalent rate.
Step 1: Deduct the series of discounts individually from 100%.
a. 100% - 10% = 90%
b. 100% - 5% = 95%

Step 2: Multiply the resulting products by themselves to give us the net invoice price rate.
a X b = 90% X 95% = 85.5% (NIP Rate)

Step 3: Deduct this NIP from 100% to get the single equivalent discount rate.
100% - 85.5% = 14.5 %(Single Equivalent Rate)

To get the discount, we multiply the single equivalent discount rate by the list price:
Discount = List Price X Single Equivalent Discount Rate
= 1,250 X 14. 5% =
= 181.25

To get the Net Invoice Price, we multiply the List Price by the Net Invoice Price Rate (NIP
Rate) obtained in step 3 above.
Net Invoice Price = List Price X NIP Rate
= 1,250 X 85.5%
= 1,068.75

To prove, we deduct our discount from the List Price.

Net Invoice Price = List Price – Discount
= 1,250.00 – 181.25
= 1,068.75

CASH DISCOUNT

Cash Discount, unlike trade discounts, are recorded in accounting records either as sales
discounts in the books of the seller or purchase discounts in the books of the buyer. These
are deductions from the recorded net invoice prices. These are also granted to buyers to
encourage prompt payment of accounts.

TERM OF SALE OR PURCHASE – refers to the term granted by the seller to the buyer.
A term like 2/10, n/30 means that a 2% cash discount is granted the buyer if the account is
paid within 10 days from the date of invoice/purchase.

Terms like n/30, n/60, n/EOM do not grant discounts; the account should be paid within
the number of days like 30 or 60 days from date of purchase/invoice or until the end of the
month of purchase to pay the account.

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COMPUTING FOR DISCOUNT PERIOD AND CREDIT PERIOD

To compute for the deadlines for the discount and the credit periods, we have to count the
number of days as called for in the terms of sale/purchase. The date of invoice/purchase is
important because that is the starting point for the count.

For a 3/10, n/60 term with invoice date of November 25, we compute for deadline for
discount period:

November has 30 days

Invoice Date 25
5 days in November
5 days in December (Deadline for Discount Period)
10 discount period

For deadline for the credit period

November has 30 days
Invoice Date 25
5 days in November
31 days in December
24 January (Deadline for Credit Period)
60 credit period

To compute for cash discount and net amount payable

Cash Discount = NIP X Cash Discount Rate
Net Amount Due = NIP – Cash Discount

SIMPLE INTEREST
In business, capital is very important. However, not all business owners always have
enough capital to sustain their business. More often than not, they have to borrow money
for use in the business. It is in this context that interest plays an important role.
Borrowers need to pay interest on the money that they borrow.

PRINCIPAL – is the amount borrowed. RATE – (Interest Rate) is the cost of using money
expressed as percentage of the principal for a given period of time, which is usually per
year. It is generally regarded as the cost of borrowing or lending out money or the cost of
credit. TIME – is the term period of the loan.

SIMPLE INTEREST FORMULA

The amount of money charged for the used of borrowed money is INTEREST EXPENSE
from the point of view of the borrower; the amount of money earned on invesed money or
money lent is INTEREST INCOME from the point of view of the creditor. Interest
computed on the original principal for any time period or length of time money is
borrowed or lent/invested is termed as simple interest.

Basic Formula to compute for simple interest is: I = Prt

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 Where I – interest (amount paid for the use of money)
P – principal (amount borrowed/lent/invested)
r – rate (percent of interest being charged)
t – time (number of periods for which the money will be borrowed/
lent /invested)

The rate and the time should always agree, that is, if rate is per annum, time should be in
years; if rate is per month, time should be in months; and if rate is per day, time should be
in days. In the absence of stipulation to the contrary, a stated rate of interest is understood
to be on a per annum or annual basis.

To find the Maturity Value or Future Value F (total amount due upon maturity), F = P + I

If we substitute our basic formula for interest , we will have:

F=P+I
F = P + Prt
F = P [1 + rt]

TO FIND RATE = I/P X T (INTEREST/PRINCIPAL X TIME)

TO FIND TIME = I/P X R (INTEREST/PRINCIPAL X RATE)

TO FIND INTEREST IF FUTURE VALUE AND PRINCIPAL IS GIVEN ( FV – P)

TO FIND PRINCIPAL = (FV - I)

NOTES:
Approximate time, like ordinary interest, assumes that each of the 12 months in a year has
30 days (360 days in a year). On the other hand, actual time counts the exact number of
days; hence a year is taken as composed of 365 days.

SALARIES AND WAGES

 EMPLOYEE COMPENSATION – refers to the remuneration given an employee in

exchange of his/her services. This can be in the form of a wage, salary, employee
benefits including sick leave and vacation leave, and incentive pay, which includes
productivity pay, commission, override, bonus, and profit sharing.

 BASIC PAY in an employee’s compensation package refers to the wages or salaries

that they get.

 WAGES – refer to earnings received by worker on a piece rate, hourly rate, or daily
rate.

 Employees who work more than the required number of hours is entitled to
OVERTIME PAY. Overtime premium could be 25% or 50% or any rate more

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 than 25% as per company policy. Earnings of employees paid on a monthly or
annual basis is generally referred to SALARY.

 INCOME – is a broader term than wages or salary. Wages and salaries are income
to the people receiving them. However, income includes dividend income to
stockholders, royalty to authors, rent income to those owning properties for rent,
etc.

 EMPLOYEE BENEFITS – covers remuneration other than basic pay. These

include vacation and sick leaves, medical and hospitalization benefits, meal
allowance, transportation allowance, clothing allowance, and incentive pay for
productivity such as commission, overrides, bonuses and profit sharing.

PAYROLL DEDUCTION

 The TAKE-HOME PAY of an employee is his/her gross earnings less certain payroll
deductions.

 The MONTHLY CONTRIBUTIONS are based on the compensation of members.

The current SSS contribution rate is 11% of the monthly salary credit not exceeding
P16,000.00 and this is being shared by the employer (7.37%) and the employee
(3.63%).

 Philhealth contributions are intended for employees and their beneficiaries should
they have problems with their health. Employee share represents half of the total
monthly premium while the employer shoulders the other half. For kasambahay or
helper receiving a wage of less than 5,000.00 per month, the employer will shoulder
both the employee and employer share based on monthly compensation.

 All government employees holding permanent and non-permanent positions are

members of the GSIS. Premium contributions are based on monthly compensation.

 WITHTHOLDING TAX ON COMPENSATION is the tax withheld from income

payments to individuals arising from an employer-employee relationship. The
withholding tax table is also available from the BIR and on the internet.

 The Home Development Mutual Fund (HDMF), more popularly known as the Pag-
Ibig Fund, was established to provide national savings program and affordable
shelter financing for the Filipino workers. With the signing of Republic Act No.
9679, membership to the fund shall be mandatory.

SALARY
Earnings of employees paid on a monthly or annual basis is generally referred to as salary.
It is sometimes necessary to convert salaries on an annual basis into monthly basis, weekly
to monthly, monthly to semi-monthly, etc. In these cases, we should always remember that:
1 year = 12 months = 24 semi-monthly = 6 bi-monthly

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1 year = 52 weeks = 26 bi-weekly
1 month = 2 semi-monthly
semi-monthly = 2/5 every month
bi-monthly = every 2 months
bi-weekly = every two weeks

HOW TO COMPUTE FOR NET PAY

Net Pay = Gross Earnings – Deductions

PIECE RATE
A worker employed on a piecework basis is paid in proportion to the quantity of work he
or she finishes. The rate used can be fixed irrespective of the quantity produced, in which
case it is called a fixed piece-rate plan. On the other hand, it can be graduated, increasing
as the quantity produced increases, in which case it is called differential piece-work plan.

HOW TO COMPUTE GROSS EARNINGS IN PIECE RATE

Gross Earnings = Quantity X Rate

HOURLY RATE
Many employees are paid on a hourly basis. To compute for the pay, we simply multiply
the number of hours of work by the hourly rate.
Ex. 40 hours X 10/hr = 400.00

COMPUTATION OF OVERTIME PAY

First, compute the hourly rate of the employee and determine overtime rate per hour.
The overtime rate = Regular Rate + Overtime Premium.

COMMISSION
A commission is a fee that a business pays to a salesperson (agent) in exchange for his
services in either facilitating, supervising, or completing a sale.

The commission may be based on a flat arrangement or as a percentage of the revenue

generated by a salesperson. In other words, commission (remuneration) is a form of
payment to an agent for services rendered.

THREE DIFFERENT TYPES OF COMMISSION:

1. STRAIGHT COMMISSION, also called (revenue commission) – a commission based on

a percentage of sales only. (This is very profitable if you are selling high-ticket items.)
Example 1:
Mike receives 20% commission on the appliances he sells. If he sell a TV for PhP7,000, a
refrigerator for PhP12,000, and a heater for PhP 1500, how much does Mike make in
commission?

Solution:
Total sales = PhP7,000 + PhP12,000 + PhP1,500 = PhP20,500

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Commission = PhP20,500 x 20% = PhP 20,500 x 0.2 = PhP4,100

2. SALARY PLUS COMMISSION – a commission in which a salesperson gets his basic

salary and a percentage of whatever sales he makes.

Example 2:
Mike decides to work for another company that will pay him PhP2,000 per week and 10%
commission on sales above PhP20,000 for the week. If he sold goods worth PhP26,000, what
is his gross pay (salary plus commission)?

Solution:
Amount of goods sold minus salary of PhP20,000 = PhP26,000 – PhP20,000 = PhP6,000 His
commission will be PhP6,000 x 10% = PhP6,000 x 0.1 = PhP600
Therefore, his gross pay for the week is PhP2,000 + PhP600 = PhP2,600.

3. GRADUATED COMMISSION – a commission, which varies according to how much

sales, is made.

Example 3:
Mike works for a company that pays him 2% on the first PhP 20,000 sold, 3% on the next
PhP 30,000 sold and 5% on all sales beyond PhP50,000. What is his gross pay if he sells
PhP 60,000?
Solution:

First commission share = PhP20,000 x 2% = PhP20,000 x 0.02 = PhP400

Second commission = PhP30,000 x 3% = +30,000 x 0.03 = PhP900
Third commission = (PhP60,000 – PhP50,000) x 5% = PhP10,000 x 0.05 = PhP500
Therefore, his gross pay is PhP400 + PhP900 + PhP500 = PhP1,800

Note that this type of commission is lucrative for high achievers.

Computing Commissions on Cash Basis

This type of commission is similar to computing straight commissions.
Example 1:
Mike works at ABC Gadget Store. For every cash purchase of a cell phone, he gets
6.1%commission. In a particular month, he was able to sell 10 cellphones costing
PhP18,000 each. How much was his total commission for such cash sales?
Solution:
Total Sales = PhP18,000/cellphone x 10 cellphones = PhP180,000
Cash commission =PhP180,000 x 6.1% = PhP180,000 x 0.061 = PhP10,980

DEFINITION OF DOWN PAYMENT:

DOWN PAYMENT is a first payment that one makes when one buys something with an
agreement to pay the rest later.

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OBTAINING DOWN PAYMENTS

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
being 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
PhP1,000,000 and a minimum 20% down payment is required by the company, then the
buyer will have an initial cash out of PhP200,000; that is, 20% (1,000,000) = PhP200,000.
The remaining PhP800,000 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 of money paid as interest to the loan. But with this
arrangement, the monthly amortization will be considerably higher than when one chooses
to pay the balance for longer number of years.

PRESENTATION AND ANALYSIS OF BUSINESS DATA

 DATA – is the plural of the Latin word DATUM, meaning “a thing given”. Data
refers to factual information in raw or unorganized form.
 STATISTICS – is the branch of mathematics that focuses on collecting, organizing,
analyzing and interpreting data.
 The initial step in analyzing business data is gathering the data.
 The FREQUENCY (f) of a particular observation is the number of times the
observation occurs in the data. Frequency distribution can show the actual number
of observations falling in each range or the percentage of observations.
 For a larger set of data, we group the data by computing for the range and deciding
on the interval. The range is the highest data minus the lowest data plus one. The
size of the intervals can be determined in a trial-and error method.
 A histogram is a form of bar graph that pictures the occurrence of certain data
shown on a frequency table.

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