Practice

NAME: Deyvi Arnica Benites

Commission

Many of our salespeople ask about commission. Although you will be selling expensive items, you
may not make a large commission. It is important to remember how profit works. There are many
costs associated with production some are variable costs, others are fixed costs. Direct materials,
for example, are variable costs. Next, the company also has to pay for labor and overhead. All of
these expenses are factored into the price of the item. Finally, the company marks up the item in
order to cover costs. Once it recoups the costs of production, it makes a profit. Your commission is
based on that profit margin.

Reading 2

Read the employee handbook. Then, mark the following statements as true (T) or false (F).

1 (F) According to the handbook, expensive items indicate large profit margins.

2 (T) Direct materials are an example of a variable cost.

3(T) Salesperson commission is based on the price of an item.

Vocabulary

Match the words or phrases (1-7) with the definitions (A-G).

1 G recoup

2 E expense

3 C direct materials

4 D variable costs

5 F mark up

6 A cover

7 B labor

A costs that change based on output

B to regain

C to make up for a cost

D raw materials used to produce something

E the cost required for something

F to price something higher than cost

G the work required to create something

Fill in the blanks with the correct words or phrases from the word bank.

Word BANK

Fixed cost - overheads - profit

1 Machinery is an)______________ because it does not change based on output

2 The company made a large ____________________on the product because the costs were so
low.

3. The overall costs of maintaining a business are called ___________________________________

5-Listen and read the employee handbook again. Why does a company mark up items?

Listening

6 Listen to a conversation between a salesperson and a manager. Choose the correct answers.

1 What is true of commission, according to the woman?

A It is part of overhead. C It is a percentage of the sale

B it is a fixed cost. D it is based on profit.

2 What example does the man give of a cost associated with production?

A labor C direct materials

B overhead D profit