Lesson 3.

Commissions

Business Mathematics
Accountancy, Business, and Management

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Quick Look

Questions to Ponder

1. What comes to your mind when you hear the term

“commission?”
2. What industries use commissions as part of their operations?
3. How is giving commissions advantageous to the business?

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Learning Competencies

● Illustrate different types of commissions (ABM_BM11BS-IIa-

11).
● Compute commissions on a cash basis and commissions on
an installment basis (ABM_BM11BS-IIa-12).
● Solve problems involving commissions (ABM_BM11BS-IIb-14).

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Learning Objectives

In this lesson, you should be able to do the following:

● Define commission on a cash and on an installment basis.
● Calculate commission on a cash and on an installment basis.
● Solve problems involving commission on a cash and on an
installment basis.

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Commissions

Companies offer commissions to encourage their employees,

salespeople, and affiliates to perform their best in generating
revenues from sales. It is also a strategy to control costs.

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 Commissions

the amount of money given

to sales agents, partners, or
affiliates as incentives for Commission
selling the company’s
products or services

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Commissions

Commissions

Cash basis Installment basis

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 Commission on Cash Basis

when a sale is made on a cash basis

Commission
on cash basis

commission
straight graduated
plus override

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 Commission on Cash Basis

Straight Commission
● earned by sales agents whose earnings are based on total
sales
● calculated by multiplying the number of sales by the rate
of commission

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 Commission on Cash Basis

Straight Commission

C = (S)(R)
C = Commission
S = Amount of sales (in peso or number of items)
R = Rate of Commission (in percent or in peso)

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 Calculating a Straight Commission

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Company ABC pays a straight commission of ₱48.00 for every

item sold. Compute the commission after selling 800 items.
Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the commission (C).

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 Calculating a Straight Commission

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Step 2: Identify the given in the problem.

The amount of sales (S) and the rate of commission (R)
are given.

S = 800
R = ₱48.00

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 Calculating a Straight Commission

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Step 3: Write the working equation.

C = (S)(R)

Step 4: Substitute the given values.

C = (S)(R) = (800)(48) = ₱38,400.00

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 Calculating a Straight Commission

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Step 5: Find the answer.

C = ₱38,400.00

The seller’s commission is ₱38,400.00.

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 Commission on Cash Basis

Graduated Commission
● the earned commission increases as the target amount of
sales increases
● calculated by getting the sum of the product of every
target amount of sales and the rate of commission for
each target

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 Commission on Cash Basis

Graduated Commission

C = (S1)(R1) + (S2)(R2) + … (Sn)(Rn)

C = Commission
S1, S2,...Sn= Amount of sales (in peso or number of items)
R1, R2,...Rn = Rate of Commission (in percent or in peso)

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 Calculating a Graduated Commission

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A seller will earn 5% for the first ₱40,000.00 and a 10%

commission for the sales above ₱40,000.00. Compute the total
commission if the total sales amounted to ₱85,000.00.
Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the commission (C).

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 Calculating a Graduated Commission

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Step 2: Identify the given in the problem.

The target amounts of sales (S1 and S2), rates of
commission (R1 and R2) for each target and the amount
of sales (S) are given.

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 Calculating a Graduated Commission

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S1 = ₱40,000.00
S2 = Please note the phrase “sales above ₱40,000.00.”
Therefore, S2 = S - 40,000 = 85,000 - 40,000 = ₱45,000.00
R1 = 5% = 0.05
R2 = 10% = 0.10
S = ₱85,000.00

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 Calculating a Graduated Commission

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Step 3: Write the working equation.

C = (S1)(R1) + (S2)(R2)

Step 4: Substitute the given values.

C = (S1)(R1) + (S2)(R2)
C = (40,000)(0.05) + (45,000)(0.10) = ₱6,500.00

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 Calculating a Graduated Commission

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Step 5: Find the answer.

C = ₱6,500.00

The total amount of commission is ₱6,500.00.

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 Commission on Cash Basis

Commission Plus Override

earned by a sales agent from the sales made by the
salespeople supervised by that sales agent

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 Commission on Cash Basis

Commission Plus Override

C = C1 + C2

C = Total Commission
C1= Commission earned by sales agent
C2= Override
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 Calculating a Commission Plus Override

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A supervisor receives a 26% commission after completing sales

amounting to ₱60,500.00 and another 6% from the
subordinates’ performance amounting to ₱125,500.00.
Compute the total commission.
Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the commission (C).

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 Calculating a Commission Plus Override

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Step 2: Identify the given in the problem.
The amounts of sales (S1 and S2) and rates of
commission (R1 and R2) are given.

S1 = ₱60,500.00
S2 = ₱125,500.00
R1 = 26% = 0.26
R2 = 6% = 0.06
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 Calculating a Commission Plus Override

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Step 3: Write the working equation.

C = C1 + C2
C1 = (S1)(R1)
C2 = (S2)(R2)

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 Calculating a Commission Plus Override

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Step 4: Substitute the given values.

C1 = (S1)(R1) = (60,500)(0.26) = ₱15,730.00
C2 = (S2)(R2) = (125,500)(0.06) = ₱7,530.00
C = C1 + C2 = 15,730 + 7,530 = ₱23,260.00

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 Calculating a Commission Plus Override

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Step 5: Find the answer.

C = ₱23,260.00

The total amount of commission is ₱23,260.00.

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 Check Your Progress
A sales agent who sells an internet service worth ₱1,400.00
will receive ₱175.00 for each subscriber. Compute the rate
1 of commission. Round off your answers to two decimal
places.
Answer area

12.5%
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 Commission on an Installment Basis

● when goods and services are sold on an installment basis,

agents may also receive their commission in this way
● same formula as in cash basis, however, the amount paid
per period is taken into account

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 Calculating Commissions on an Installment Basis

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A seller earns an 8% commission for the sales amounting to

₱300,000.00. The buyer will pay in 6 monthly installments of
₱50,000.00. Compute the seller’s monthly commission.

Solution:
Step 1: Identify what is required in the problem.
You are asked to calculate the monthly commission (C).

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 Calculating Commissions on an Installment Basis

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Step 2: Identify the given in the problem.

The amount of sales (S) and rate of commission (R) are
given.
S = Since the buyer’s payment is monthly, S = ₱50,000.00
R = 8% = 0.08

Step 3: Write the working equation.

C = (S)(R)
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 Calculating Commissions on an Installment Basis

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Step 4: Substitute the given values.
C = (S)(R) = (50,000)(0.08) = ₱4,000.00

Step 5: Find the answer.

C = ₱4,000.00

The amount of commission for each month is ₱4,000.00.

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 Problems Involving Commissions

● companies typically weigh whether offering commissions

or salaries would be advantageous
● salespeople determine whether earning from
compensation or commission would be advantageous

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 Problems involving Commissions

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1. A seller sold a complete desktop with operating system for
₱34,000.00 and received a ₱1,700.00 commission. Compute
the rate of commission.

The rate of commission is 5%.

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 Problems involving Commissions

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2. A seller closed a deal worth ₱480,000.00 to be paid equally

in 6 months and will receive a 9.5% commission. Compute
the seller’s monthly commission.

The amount of commission

for each month is ₱7,600.00.

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Keep in Mind

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