Business Mathematics

11
Table of Contents
1 Lesson 1: Fundamental Operations on Fraction
7 Lesson 2: Fundamental Operations on Decimals
10 Lesson 3: Fundamental Operations on Percent
10 Lesson 4: Ratio and Rates
14 Lesson 5: Proportions
16 Lesson 6: Buying and Selling
41 Lesson 7: Salaries and Wages

Lesson 1: Fundamental Operations on Fractions

Recall
A. Integers - are the whole numbers, negative whole numbers, and zero
B. Prime number– a positive integer (except 1) whose factors are only 1 and itself Examples:
5, 13, 127
C. Composite number– a positive integer (except 1) which can be expressed as a product of
two or more positive integers, i. e., it has other factors besides 1 and itself
Examples: 28, 39, 100
D. Relatively prime numbers – positive integers which do not have common prime factors
Examples: 6 and 35, 4 and 121
A FRACTION represents a part of a whole or a group. It is expressed as a quotient of two
quantities, namely, the numerator (number above the fraction bar) and the denominator(number
below the fraction bar). The numerator indicates the number of parts taken from the whole and
the denominator specifies the number of equal parts the whole is divided into. (Solano, 2020)
A fraction is a number which can be expressed as a quotient of the form
n
where d, called the denominator, is the number of equal parts into which the whole has been
d
divided , and n, called the numerator, is the number of parts taken.

Did you know?

- a fraction must be viewed as a single number and not as two numbers - fraction is a ratio of
integers

What are the kinds of fractions?

Fractions are classified as proper, improper, and mixed numbers. Refer to page 5 of your book
and look for the definition and examples of each classification then complete the table in the next
page. This will serve as your reference for the next activities.
  PROPER IMPROPER MIXED NUMBERS
FRACTIONS FRACTIONS
DEFINITI A fraction where the A fraction where the A whole number and
ON numerator (the top numerator (the top a fraction combined into
number) is less than the number) is greater than or one "mixed" number.
denominator (the equal to the denominator
bottom number). (the bottom number).
 
EXAMPLE 3 5 1
5
S 4 2 2
 
 
Here is a guide to FRACTIONS in 9 Simple Facts

1. Fraction = number of parts / total parts

Every fraction has a numerator that equals the number of parts we have and a denominator
equaling the total number of parts in a whole.

Any Number Can Be Written As a Fraction

Write any whole number over 1 to make it a fraction since the total number of parts in any
undivided whole is one.
 
2. Multiply Fractions Straight Across
Multiplying fractions is easy, just multiply straight across. Note: Mixed numbers must be
turned into improper fractions first, read on for more about this.

3. Multiply By Any Form of One Anytime

The number 1 is called the multiplicative identity because we can multiply it by any number
and the number remains the same. This is important for fractions because often times we need to
alter the appearance of a fraction without actually changing its value. For example, I can change
1/3 into the equivalent fraction 3/9 by multiplying by 3/3.

4. Add and Subtract Equal Sized Parts

When adding and subtracting fractions the denominators must be the same. That makes sense.
If we wish to combine or take away parts we must be talking about the same sized parts,
otherwise it would get confusing.
So what do you do if your fractions do not have the same sizes?
5. Multiply by a form of one to change the denominators into a common size. Essentially,
we’re dividing the fractions into smaller sized pieces until they’re the same size. This is called
finding a common denominator.
Truthfully, any common denominator will do, but people prefer to find the smallest one. In
this case the smallest number both 7 and 3 go into without a remainder is 21. So multiply the
first fraction by 3/3 and the second by 7/7.

If you can’t think of the least common denominator, you can always multiply each fraction by
the opposite denomination. Sometimes, as in this case, that turns out to be the least common
denominator. If it isn’t, just reduce your answer at the end.
Once the denominators are matching, subtract the numerators to get 8/21.

6. Change Out Mixed Numbers First

Mixed numbers don’t play well with other fractions. It’s a good idea to convert them into
improper fractions first.
Note: An improper fraction is a fraction whose numerator is larger than its denominator
therefore having a value greater than one.

Converting a Mixed Number is Really Addition

To convert 2 and 4/5 into an improper fraction add 2 + 4/5.

Step 1: Begin by rewriting 2 as 2/1.

Step 2: Multiply 2/1 by 5/5 to make an equivalent fraction of 10/5 which has the desired
common denominator of 5.

Step 3: Add 10/5 + 4/5.

Our result is the equivalent improper fraction 14/5.

To convert back to a mixed number perform the division. For example, 5 goes into 14 two times
(since 5 x 2 = 10) with 4 pieces left over.

7. Compare Fractions Using The Cross Product

Suppose we wanted to determine which is bigger: 5/12 or 6/13. Make sure they are not in mixed
number form first!
Step one: Multiply a diagonal and write the product above the numerator.

Step two: Multiply the other diagonal and write its product above its numerator.
Step three: Compare the products. The side with the larger product is the larger fraction. So in
this case, 5/12 is less than 6/13.

We can determine if fractions are equal using cross products too.

Cancel Anything That Divides to One

The best thing about fractions is that you can find plenty of opportunities to cancel. Which
makes them quick and easy to manage.

Suppose I have the fraction 8/10. Both 8 and 10 can be rewritten with 2 as a factor. Because 2/2
= 1, I can cancel out
the 2’s leaving 4/5 as the reduced fraction. Utilize this strategy to make multiplying fractions
easier as well.

8. Use Multiplication to Divide Fractions

The concept of dividing fractions is easy with simple examples such as:

There are two halves in a whole, therefore there are 10 halves in 5 wholes. But the concept gets
tricky with more complicated fractions.

To solve this problem we’ll utilize two facts:

We can multiply by any form of one (i.e anything over itself)
Multiplying by the reciprocal of 3/2, which is 2/3, results in 1 via canceling

Bonus:

Why does the cross product trick work?

Great question! To generalize, make two fractions using the letters a, b, c, and d to represent four
different numbers.

Multiply both fractions by b•d (this will enable us to cancel out the denominators).
Now cancel the b’s on the left and the d’s on the right since they divide to 1. We no longer have
fractions, just the products d•a and c•b.
Look back at the original fractions. These are the same products as if we had multiplied the
diagonals. Therefore, the shortcut is to compare the cross product. (Berry, 2015)
 

Simplifying Fractions (Reducing to its Lowest

Terms)
It is usual to reduce a fraction until it can't be reduced any further. A simplified fraction has no
common factors which will divide into both numerator and denominator.
 

Comparing Fractions
7 3
In the diagram on the right, it is easy to see that is larger than (since 7 is larger than 3).
8 8
 
7 5
However, it is not as easy to tell that is larger than .
8 6
In order to compare fractions, we must have the same (common) denominators.
This process is called "Finding the Least Common Denominator" and is usually abbreviated
as finding the LCD or LCM (lowest common multiple).
7 5
Which is larger: or ?
8 6
In order to compare these fractions, we must change both fractions to equivalent fractions with a
common denominator.
To do this, take the largest denominator (8) and examine multiples of it, until the other
denominator (6) divides into it.
Notice that, when we multiply 8 ✖ 3, we get 24, which 6 divides into.
Now change the fractions to 24ths.
When we change these fractions to equivalent fractions with an LCD of 24, we can easily see
7 5
that is larger than
8 6
21 20
Since is greater than .
24 24
 8 ×1=8(6 doesn't divide into 8)
8 ×2=16(6 doesn't divide into 16)
8 ×3=24 LCD
7 21 5 20
= ¿ =
8 24 6 24
 
Problem Solving
1
1. The store manager is thinking of repackaging 25kg of sugar into packages of 1 kg.
2
How many
1
1 kg packages can he make.
2
1 3 25 2 50 2
25 ÷ 1 ¿ 25 ÷ ¿ × ¿ ¿ 16 ∨16 packages  
2 2 1 3 3 3

Lesson 2: Fundamental Operations on Decimals

What are decimals?
A decimal number can be defined as a number whose whole number part and the fractional
part is separated by a decimal point. The dot in a decimal number is called a decimal point.
The digits following the decimal point show a value smaller than one. It can also be defined
as a fraction with unwritten denominator of 10 or some power of 10.
(Solano, 2020)

There are two kinds of decimals. How are they different from each other?
- a decimal that ends of  a decimal number that does not end
terminates  further classified as:
A. Repeating - has a digit or block of digits repeated
in the decimal part
B. Non-repeating - no digit or sequence of digits
repeated in the decimal part
- examples : 0.25, 0.50, 0.75, and - examples are the mathematical constants
0.80

Working with Decimals

A. Adding and Subtracting Decimals

Decimals extend the number system beyond the simple ‘hundreds, tens, units’ into ‘tenths
of units’, ‘hundredths of units’ and so on. Working with decimals is therefore essentially
the same as working with any other number. If you were adding numbers without decimals,
you would start with the units, and move along to tens, then thousands and so on. The same
rule applies if there are decimals. Add them first, then units, then tens and so on.
*** The most important rule to remember is to line up the decimal points in your
calculation, ensuring that the decimal point in the answer also lines up with the decimal
points above it (Decimals, 2020).
Example:
You deposited Php 15,000 in your savings account that has an available balance of Php
185, 455.43. Your deposit earned the following interests: Php 61.67 in December, Php
318.70 in January, Php 180.16 in February, and Php 212.12 in March. What will be your
savings account available for cash?

Solution:
₱185,455.43
15,000.00
61.67
318.70
180.16
212.12
₱201,228.08
 

B. Multiplying Decimals
Multiply the same way as you multiply whole numbers. Count the number of decimal
places in the factors. The number of decimal places should be equal to the total number of
decimal in the factors (Decimals, 2020).
Example:
You purchased 2,000 shares of IPS common stock at Php 98.87 per share. Your stock
broker charges commission of 3%. Calculate the total cost of shares of IPS common stock.
Cost of Shares = Price per Share x Number of Shares
= php 98.87 x 2,000
= Php 195,740
Broker’s Commission = Cost of shares x Commission Rate
= Php 195,740 x 0.03
= Php 5,872. 20
Total Cost = Cost of Shares + Broker’s Commission
= Php 195,740 + Php 5,872. 20
=Php 201, 612. 20

C. Dividing Decimals
To divide a decimal by another, first move the decimal point in both the divisor and
the dividend , the same number of places to the right to convert the divisor to a whole
number.
As a newly promoted human resources manager, you are conducting a study about the
salary and wage structure of your company. One of the documents on your table shows
that the annual gross compensation of an employee from your department is Php 223,
720.29. You would like to determine whether the employee is receiving the minimum wage
rate or not. Compute the employee’s daily gross income (Decimals, 2020)
 Solution:
Daily Gross Income = Annual Gross Income ÷ Number of days in a year
Compute the number of workdays in a year. Assuming that your company has a 6day
workweek, then

6 days x 52 weeks = 312 days

Daily Gross Income = Php 223, 720.29 ÷ 312
= Php 717.05

D. Converting Fractions to Decimals and Vice Versa

All decimal numbers can be expressed as a fraction and vice versa.
- Decimal to fraction conversion is usually a two-step operation.
 First, convert the decimal to fraction using tenths, hundredths, thousandths, etc. depending
on the number of decimal places. e.g. 1.75 = 1 75/100.
 Next, simplify the fraction part to the lowest common term. e.g. 75/100 = ¾ (Convert
Decimals to Fractions, 2020)

Lesson 3: Fundamental Operations on

Percent
People would often use the words percent and percentages interchangeably. However, these two
words are not synonymous. A percent refers to parts per hundred, while percentage is the result
obtained by multiplying a number by a percent. The use of word percent of the % symbol should
be accompanied by a specific number, while percentage is used without the % symbol and in
some cases may be used alone without a specific value.
(Solano, 2020)

Percent and Percentage are also used to denote increases or decreases in the value of certain
quantities or to express how large a portion a specified part is of a given whole.
 
The term percent comes from the Latin phrase per centum, which means "by the hundreds."
 
The term percentage is usually used without an accompanying number, and is often used as a
noun.
Percent may be used to indicate rate.
Base- the amount corresponding to the given percent is computed from the size of the whole
Percentage- the size of the part which corresponds to the indicated percent
 
r
r%=
100

Lesson 4: Ratio and Rates

UNDERSTANDING RATIOS and RATES
 What is the difference between ratios and rates?
Both rates and ratios are a comparison of two numbers. A rate is simply a specific type of
ratio. The difference is that a rate is a comparison of two numbers with different units,
whereas a ratio compares two numbers with the same unit. Let’s explore these concepts
deeper.
ALL ABOUT RATIOS
Ratio is applied not just in activities that involve simple day-to-day comparison but more
importantly in business comparative analysis. Ratio analysis is one of the techniques that is
used in financial statement analysis which you will encounter in your Fundamentals of
Accountancy, Business an Management 2 subject in Grade 12. Ratios are computed from
these financial statements to provide the management, investors, and other users of
financial information to assess a company’s performance.

What is a ratio?
A ratio is a comparison of two numbers or quantities. It is an indicated quotient of two
quantities of the same kind, expressed in the same unit of measure. If you compare the
numbers a and b, then the ratio of a to b is written as:
a : b or a/b

The ratio of b to a is written as b : a or b/a

A ratio is a comparison of the sizes of two or more quantities. The common forms of
expressing ratios are the following: in fraction form, using a colon to separate the
quantities, or using the word "to."

The numbers that belong to a given ratio are called terms of the ratio. When a ratio
involves more than 2 quantities, the colon form is used.

FYI : The order by which the numbers are written in ratio form is important. The result of
the comparison using ratio is a number without a unit.

EQUIVALENT OR EQUAL RATIOS

Since a ratio is a fraction, you can reduce a ratio to its lowest term. The ratios listed below
have the same value. They are called equal or equivalent ratios.
ORIGINAL EQUIVALENT RATIO IN LOWEST
RATIO TERM
30 : 45 2:3
12 : 48 1:4
20 : 75 4 : 15
 
1.  Liz and Boie are cousins and they decided to become business partners. They have
agreed that Liz will invest Php 250,000, while Boie will invest Php 400,000. The profit
from the business venture will be divided based on the ratio of their investments.
What is the ratio of their investments which will be used later as basis in their
distribution of profit?
 
 solution:
Investment of Liz 250 000
Investment of Boie 400 000
250,000
Hence, the ratio of Liz’s investment to Boie’s investment is
400,000
 
Next, express the ratio in simplest form by dividing the numerator and the denominator by
their GCF.
250,000 25 25 ÷ 5 5
= = =
400,000 40 40 ÷ 5 8
Therefore, the ratio of Liz’s investment to Boie’s investment in implest form is ⅝ or 5 : 8 or
5 to 8. This means that for every Php 5 of Liz’s investment, is 0.625 or 62.5% of Boie’s
investment.

2. The debt-to-equity ratio is computed to compare resources provided by creditors with

resources provided by shareholders. If ABC company has total liabilities of Php
880,000 and total equity of Php 3,120,000, what is the debt-to-equity ratio of ABC
company? Interpret the vaue of the ratio obtained.
Note : The debt to equity ratio is a ratio computed in the ratio analysis of financial
statements. It is calculated by dividing the total liabilities by the equity.
 
Total Liabilities 880,000 88 11
Debt−¿−Equity Ratio= ¿ ¿ ¿ ¿ 0.281 
Equity 3,120,000 312 39

The ratio means that the resources provided by the creditors are quite small
compared to the resources provided by the shareholders. A lower debt-to equity ratio
usually implies a more financially stable business. This shows that investors have
funded the operations of the company because the company is performing well.

Rate is a concept that is used often in everyday situations such as when you compare
process of goods with different quantities. You compare items to determine which one is
the better buy. Investors in the foreign exchange market would also look into the rates
before investing in a certain currency so they can maximize opportunities.
 
RATE: What is it?
A rate is a special ratio of two numbers with different units of measurement such as
kilometers per hour, words per minute, or price per kilogram. By converting the ratio to a
fraction with a denominator of 1 unit gives the unit rate of doing something. Any ratio that
is not a unit rate can be turned into one.

LET’S LOOK INTO THESE EXAMPLES:

3. Worker A receives Php 1,792 for his day’s work of 8 hours, while Worker B receives Php
1,500 for his half day’s work of 4 hours. Since their working hours vary, it its difficult to
 compare the wages received by the two workers on the basis of their take home pay for the
day. However, a comparison of their take home pay is possible using a basic unit rate,
which is their hourly rate. So, what is their unit wage or rate per hour? Assuming worker A
and worker B are doing the same task and have no other difference in their working
condition, who gets a better pay?

Worker A’s ratio of daily earnings to his number of hours worked is

 
1792 1792 ÷8 224
= =
8 8÷8 1
 
Worker B’s ratio of daily earnings to his number of hours worked is
 
1500 1500 ÷ 4 375
= =
4 4÷ 4 1
Worker B gets a better pay than worker A because worker B earns Php 375 per hour as
compared to worker A who earns only Php 224 per hour.

 
4. If 12 prints of pictures cost Php 360, what is the unit cost of a print of pictures?

Solution:
The unit cost is the ratio of the number of prints to the cost. The units cost is solved as
follows:
P h p 360 P h p 360 ÷12 P h p 30
= =
12 prints 12 prints ÷ 12 1 print
 
Thus, the unit cost is Php 30 or Php 30 per print.
 
Lesson 5: Proportion
Proportions are related to ratios in that they tell you when two ratios are
equal to each other.
 
A statement expressing the equality of 2 ratios is called a proportion. Hence, if the ratios a:b and
c:d are equal, then the equation
a c
= is a proportion.
b d
The numbers b and c are called "means," while the numbers a and d are called "extremes."
 
Extreme-Means Property of Proportions
a c
If = is a proportion and b ≠ 0 , d ≠ 0 , then the product of the means, b ✖ c, is equal to the
b d
product of the extremes, a ✖ d.
 

Direct Proportions/ Direct Variation

We consider 2 quantities, say x and y, that are related in such a way that if the value of x
y
changes, then the value of y also changes, such as the ratio is a constant, say k. Thus the
x
values of x and y are related by an equation of the form: y=kx ,k ≠ 0
 
Y and x are directly proportional
y is directly proportional to x
y and x are in a direct proportion.
 
k= constant of proportionality/ constant variation
 

Inverse Proportions/ Indirect Proportions/

Inverse Variation
When 2 quantities x and y are related in such a way that the product of their values is a constant,
that is, there exists a nonzero constant k such that xy=k
X and y are inversely proportional to each other
x and y are in an inverse proportion
 
If k is positive, then the value of y increases as x decreases, and vice versa.
 

Partitive Proportions
When a quantity is divided into 2 or more parts such that the parts are in a definite ratio with
each other.
 

Joint and Combined Variation

Joint variation is a variation where a quantity varies directly as the product of two or more other
quantities. For example, the area of a rectangle varies whenever its length or its width varies. We
say that A = lw, where A is the area, l is the length and w is the width.
Combined variation is a variation where a quantity depends on two (or more) other quantities,
and varies directly with some of them and varies inversely with others. Refer to page 63 for more
sample problems.
To solve problems involving proportions, follow these easy steps.
Step 1: Determine the type of proportion involved in the problem.
Step 2: Identify the given information and what is asked in the problem.
Step 3: Form the equation that describes the proportion.
Step 4: Substitute the given values in the equation and solve for the unknown.
Step 5: Check for the reasonableness of the answer.
 
KEY TAKEAWAYS:
Ratio compares two numbers with the same unit of measurement, while rate compares two
numbers with different units of measurement.
Ratio and rates can be written as fractions and decimals
Ratios written as fractions must always be reduced to lowest terms
Unit rates are simpler to understand and make comparison possible by having a common
denominator of just 1
Since in a proportion, the product of the means is equal to the product of the extremes, it can be
concluded that a proportion is also a statement in which the two ratios are equivalent fractions
If the ratios are equivalent, the proportion is true. If not, the proportion is false.
Finding a cross product is another method for determining whether a proportion is true or false.
Cross multiplying is also helpful for finding an unknown quantity in a proportional relationship.
Setting up and solving proportions is a skill that is useful for solving a variety of problems.
 

Lesson 6: Buying and Selling

How do I Price my Products
Ask people to pay too much for your product or service and they will stop buying. Ask
too little and your profit margin slides or customers assume your product is poor quality.
An 'optimum price' factors in all your costs and maximizes your margins while remaining
attractive to customers. Here's how to set your prices.

1. Know the market. This is very important. You need to find out how much customers
will pay, as well as how much competitors charge. You can then decide whether to match
or beat them. Simply matching a price is dangerous, though - you need to be sure all your
costs - both direct and indirect - are covered.
2. Choose the best pricing technique. Cost-plus pricing involves adding a mark-up
percentage to costs; this will vary between products, businesses and sectors. Value-based
pricing is determined by how much value your customers attach to your product. Decide
what your pricing strategy is before making a calculation.
3. Work out your costs. Include all direct costs, including money spent developing a
product or service. Then calculate your variable costs (for supplies and materials,
packaging and so on) - the more you make or sell, the higher these will be. Work out
what percentage of your fixed costs (overheads such as rent, rates and wages) the product
needs to cover. Add all of these costs together and divide by volume to produce a unit
breakeven figure.
4. Consider cost-plus pricing. You will need to add a margin or mark-up to your break-
even point. This is usually expressed as a percentage of break-even. Industry norms,
experience or market knowledge will help you decide the level of mark-up. If the price
looks too high, trim your costs and reduce the price accordingly. Be aware of the
limitations of cost-plus pricing, because it works on the assumption you will sell all units.
If you don't, your profit is lower.
5. Set a value-based price. You'll need to know your market well to set a value-based
price. For example, the cost to bring a hairdryer to market might be P800. But you might
be able to charge customers P1,500 if this is the market value.
6. Think about other factors. How will charging VAT have an impact on price? Can you
keep margins modest on some products in order to achieve higher margin sales on others?
You might need to calculate different prices for different territories, markets or sales you
make online. Do you need to allow for possible late payment by customers? Consider
your payment terms and keep an eye on your cash flow.
7. Stay on your toes. Prices can seldom be fixed for long. Your costs, customers and
competitors can change, so you will have to shift your prices to keep up with the market.
Keep an eye on what's going on and talk to your customers regularly to make sure your
prices remain optimal.

Mark-on, Markup, Markdown

The primary purpose of operating a business is to generate profits. Some businesses
manufacture products to sell them. Other businesses buy products from someone else
then resell these products. Both types of businesses must sell their products for more than
the cost needed to produce or purchase them to earn some profit. This is called the
markup, margin, or gross profit.
Markup is the amount of money that businesses add to the cost they incurred to
manufacture a product or to an item they purchased, so that when they sell them, they can
cover their initial expenses and make a profit.
The selling price is the price at which the item is actually sold. This is computed as
the cost for the business to manufacture or purchase the item plus the markup. Thus,
Selling Price=Cost + Markup
 For some businesses, cost may be the more logical base for calculating markup.
However, calculating markup based on selling price is an advantageous method for many
retail stores.

Although many businesses base their markup on cost, many others, often retailers,
commonly use markup based on selling price. This is because they keep most of their
records in terms of selling price. When the markup is based on selling price, the rate of
selling price is known and is 100%.
Markup=Rate of Markup × Selling PriceCost =Selling Price−Markup

There are cases when a business may put items on sale in order to get rid of an
inventory of items or to entice customers to the store with the hope that they will make
other purchases. The amount that the business deducts from the selling price of an item is
called the markdown which is also known as discount. The markdown rate or discount
rate is a percent of the original selling price. The markdown is the product of the selling
price and the markdown rate.
Markdown=Rate of Markdown × Selling PriceSale Price=Selling Price−Markdown

In precise usage of terms, MARK-ON refers to the difference between the original selling
price and the cost of an item.For example, if the original selling price of an item is Php
900 and the cost is Php 790, the mark-on is Php 200.
The selling price is the market price that a product will be sold, while the cost is the
actual price that the product was bought from a manufacturer or wholesaler.
However, the term mark-on is seldom used. Many entrepreneurs, accountants, and even
ordinary people refer to mark-on as markup, initial markup, or original markup.
MARKUP is an increase in the original selling price. On the other hand, reduction in the
selling price is called a MARKDOWN.
A. MARK-ON OR INITIAL MARKUP
The formulas for computing the mark-on/initial markup, selling price, and cost
are as follows
Mark-on or Initial Markup = Selling Price- Cost
Selling Price = Cost + Mark-on or
Selling Price = Cost + Initial Mark-up
Selling Price=Rate of Markup ×Cost
Cost = Selling Price - Mark-on or
Cost = Selling Price - Initial Mark-up
1.) If a 50g coffee refill pack costs Php 33.50 and a convenience store adds
an initial mark-up(or mark-on) of Php 7.50 for all items it sells, what is the
selling price for the coffee refill?
Selling Price = Cost + Initial Mark-up
= P33.50 + P7.50 = P41.00
2.) If a convenient store sells bath soap for Php 48 and has a mark-on of P10,
what is the cost of the bath bomb?
Cost = Selling Price - Mark-on
= P48 - P10
 = P38.00
3.) If a 55 g pack instant ramen noodles costs P7.10 and is sold for P10, what
is the initial markup of the instant ramen?
Initial Markup = Selling Price - Cost
= P10 - P7.10
= P2.90

B. MARKUP
Businesses buy products at a cost price and then markup the products to cover the
expenses (overhead) of running the business and the desired profits. The sum of
cost plus markup gives the selling price, as shown below. Markup is also referred
to as margin or gross profit. The basic formulas for computing the markup and
selling price are as follows:
Selling Price = Cost + Markup
S=C+M
Markup (since it includes expenses and profits) can be rewritten as follows
Markup = Expenses + Profits
M=E+P
Substituting the expression for markup into the selling price equation gives us:
Selling Price = Cost + Expenses + Profit
S=C+E+P

EXAMPLES:
Example 1: Audiophile Records purchases CDs at a cost of Php12 each. Operating expenses of
the business are 25% of the cost and the owner requires a profit of 15% of cost. How much is the
markup on the CDs? What is the selling price?

Solution:
(i) To find the markup, we use the information given about expenses and profit:
M = E + P = (0.25×C) + (0.15×C)
M = (0.25 × Php12) + (0.15
× Php12) M = 3 + 1.80 =
Php 4.80

(ii) To find the selling price, we now add the markup of Php 4.80 to the cost:
S=C+M
= Php 12 + Php 4.80
= Php 16.80 per CD

Example 2: Meteor Lights purchases disco balls for Php 67.00 each. Operating expenses are 25%
of the selling price and the owner requires a profit of 10% of the selling price. How much should
the disco balls be sold for?
Solution:
Operating expenses are 25% of the selling price, so E = 0.25×S. Profits are 10% of the selling
price, so P = 0.10×S.
S = C + 0.25S + 0.10S
S = 67 + 0.35 S
0.65S = 67
S = Php103.08
Meteor Lights must sell the disco balls for $103.08 each.

RATE OF MARKUP
The markup can be expressed as a percentage of the (1) cost or (2) selling price. This is known
as the rate of markup.

(1) Rate of markup based on cost is denoted by mc

=Markup/Cost = M/C (multiply by 100 to get the
percentage)

(2) Rate of markup based on selling price is denoted by

mS= Markup/Selling price = M/S (multiply by 100 to get
the percentage)

Example 1: The cost of a new hoodie is Php 300. The selling price is Php 450. Find the rate of
markup based on cost.

Solution:
S=C+M
M = S – C = 450 – 300 = Php150
Now we can solve for the rate of markup based
on cost, mc =M/C=15/30=0.50=50%

Example 2: A ballpen is bought at cost for Php 45. The rate of markup based on cost was 25%.
Find the selling price and markup.

Solution: First we find the markup since we are given the rate and cost, mc = M/C
M = mc × C
M = (0.25)×45 = Php 11.25
Now we plug into the selling price equation and find S = 45 + 11.25 = Php 56.25

Example 3 : The cost of a new pair of headphones is Php 94. The rate of markup based on selling
price is 40%. Find the selling price and markup.

Solution:
S =C + M
S=94+0.4S — ms =M/S=0.4 ; so M =0.4× S
 0.6S = 94
S = Php 156.67
Now we can easily determine the markup:
M=S–C
= 156.67 – 94 = Php 62.67

Is there a difference between markup and

margin?
Yes there is. Business owners often confuse
margin and markup. Both figures help you set
prices and measure productivity. Each markup also
relates to a specific margin. But, a margin vs.
markup chart shows that the two terms reflect
profit differently. Markup is the amount added to
the cost of good to obtain the selling price while
MARGIN(also known as gross margin or gross
profit) is defined as selling price minus cost of
goods sold(COGS). It’s important to know the
difference between margins and markups in
accounting. Refer to the table on the right to see
how these concepts are compared.

WHAT OTHER TECHNIQUES DO

BUSINESSES DO IN TERMS OF PRICING?
Retailers are in the business of making money,
which means it’s extremely important to budget,
price, and plan accordingly. And sometimes that
plan involves markdowns — a reduction of the
original price of goods to increase sales.

What is a markdown?
A markdown is a reduction in the regular selling
price of a product. Remember waiting for
promotions and sale before buying that pair of
shoes? That promo offered by businesses is an
application of the concept of markdown. The Sale
Price is the reduced price as shown below.
Sale price = Regular selling price – Markdown
The rate of markdown (md) is ALWAYS BASED ON THE REGULAR SELLING PRICE.
md= MD/S
Markdown on selling prices occurs in response to market conditions (e.g. competitor pricing)
and often leads to less-than-desired profit levels. While a business might be willing to have zero
profit, they don’t want to lose money handling the product. The total cost of the product includes
the cost of buying the product and the expenses involved.
Total Cost = Cost+ Expenses
TC = C + E

Markdowns vs. Discounts – What’s the Difference?

When you are running your own business, you know how important every penny is. So when it
comes time to give a discount or markdown your product, you need to first understand the
difference between the two. Contrary to what other people believe, these two are not actually the
same. A markdown is a reduction in price because of a product’s inability to sell at its original
price, while a discount is a reduction in price for a specific purpose. While discounts are
temporary, markdowns are permanent price reductions.

Trade Discount and Discount Series

What is a discount?
A discount is a reduction in price for a specific purpose and targeted towards a specific group of
people. For example, this could include employee discounts, military discounts, student
discounts, senior discounts, or special events. Unlike markdowns, discounts only affect an item’s
retail price for a certain group of people — not every shopper.

One of the most important factors to consider (also one of the firsts) is the cost. If
you want to maximize your profit, you would want to look into the manufacturers
that offer the cheapest price or look for suppliers who offer discounts when you buy
in bulk because when a manufacturer sells an item to a retailer, the manufacturer
usually provides a suggested list or retail price. The LIST PRICE of an item
represents the price for which the retailer should sell the item. Now, if the retailer
sells the items using the price list, he will not get any profit at all. Therefore, when
the manufacturer sells to a retailer, the manufacturer gives trade discounts.
What is a trade discount?
• A trade discount is the amount by which a manufacturer reduces the retail price of a product
that it sells to a retailer, rather than to the end customer.
• It is the difference between the list price and the net purchase price(the amount to be paid by
the retailer to the manufacturer)
• Can either be a single trade discount or a discount series

What is the purpose of trade discounts?

Manufacturers might offer trade discounts for a variety of reasons. They may be able to sell a
larger volume of product at a lower price when they offer a trade discount. Also, a seller who
buys a large number of items might be able to demand a lower price to continue doing business
with the manufacturer. Finally, the manufacturer might offer a substantial discount to establish a
new distribution channel.
How do trade discounts work?
The retailer charges the full retail price to its customers in order to earn a profit based on the
difference between the amount by which the manufacturer sold the product to him and the price
at which he then sells the product to the final customer.
A. SINGLE TRADE DISCOUNTS
- Single trade discounts are commonly known as “one-off” discounts that your business offers
to customers or clients when their purchases meet a specific condition that would trigger that
discount. The condition is one that you set but it can include buyers who pay in cash, buyers
who purchase in bulk or buyers who make purchases during a specific promotional time
period.
Example: If you run an automotive parts business, you could offer a retailer a 10 percent
discount if the retailer orders Php 30,000 or more worth of merchandise. This is a one-off
because the discount only applies if the retailer can meet the specific condition that
you’ve established.

B. DISCOUNT SERIES
• Trade discounts are often listed in a series. This means that a manufacturer often lists two or
more trade discount percentages which may apply to the same price list.
• It also refers to a discount that you offer based on a number of different conditions. Rather
than just offering the discount after one condition is met, the discount series requires
purchasers to meet different conditions at different times.
• Example: Let’s say you sell wholesale auto parts. You might offer a 20/10/5 split in which you
provide a 20 percent discount as a promotion, a 10 percent discount if the client buys at a
certain volume, and a five percent discount if payment is made within 30 days. It’s important
to remember, however, that in a discount series the buyers won’t receive each discount unless
that specific condition is met. So in the above example, the buyer would receive 20 percent off
the top but would only receive the additional 10 percent if it bought a specific number of
items, and the five percent if the payment were made within 30 days. In that 20/10/5 split, the
20 percent is taken off the entire purchase amount, while the 10 percent is deducted from what
remains, and the five percent deducted from what’s left over after the 10 percent is deducted.
• To find the net price of an item in a series of discounts, use the following formula:
Np = Lp (1 - Dr1) (1 - Dr2) (1 - Dr3)... (1 - Drk)
• To find the single trade discount rate equivalent to a series of discounts, use the following
formula:
Dr = 1- (1 - Dr1) (1 - Dr2) (1 - Dr3)... (1 - Drk)

LET’S TRY TO SOLVE THIS SAMPLE PROBLEM:

• An item listed for P4,000 has been given trade discounts of 30%, 20%, and 10% by the
manufacturer. What is the net price? What single trade discount rate is equivalent to these
series of discounts?
Step 1: Identify the given information and what is asked in the problem.
You are given the list price and discount rates.
Lp = 4,000 Dr1= 30% Dr2 = 20% Dr3=10%
Step 2: Substitute the values in the formulas above and solve for the unknown.
Np = 4,000(1-0.30)(1-0.20)(1-0.10)
= 4,000(0.70)(0.20)(0.90)
= Php 2, 016
 Thus, the net price is Php 2,016

Dr = 1-(1-0.30)(1-0.20)(1-0.10)
= 1-(0.70)(0.20)(0.90)
= 0.496
= 49.6%
Thus, the single rate equivalent to 30%, 20% and 10% is 49.6%
The primary difference between a single trade discount and discount series is that there are more
conditions buyers must meet in a discount series to take full advantage of the reduction.

BESIDES THESE TWO, THERE IS ANOTHER TYPE OF DISCOUNTS - CASH

DISCOUNT.
Cash discounts
- the discount given to persuade customer to pay in cash or within a specified time
- Applied on the net price, the price after all the trade discounts have been deducted
- The amount of cash discounts will depend on the dating methods used, and the terms and date
of payment stated
The formula to compute for the cash discount is as follows:
Cash Discount = Net Price x Cash Discount Rate
Let’s look into this example:
Braniac Enterprises received an invoice of P7,500 for school supplies dated July 4 with terms of
5/15, n/30. It the invoice is paid on July 16, how much cash discount did Braniac Enterprises
receive from the supplier? How much should Braniac Enterprises pay?

Solution:
A cash discount of 5% will be given since the invoice is paid within 15 days.
Cash Discount = Invoice Price x Cash Discount Rate
= P7,500 x 0.05
= P375.00
Braniac Enterprises’ Payment = Invoice Price - Cash Discount
= P7,500 - P375
= P7,125.00

COMPUTING FOR PROFIT AND LOSS

Profit and loss are important business concepts. People do business or invest in business
primarily for profit. Financial institutions would be willing to finance businesses that can show
they are capable of making profits and paying debts when due. (Solano, 2016)

Business owners make profit if they sell an item at a price more than what they paid for it when
they bought it. They incur loss if they sell an item at a price less than what they paid for when
they bought it. To compute for profit or loss obtained in buying and selling the item, get the
difference between the price at which the item is sold (selling price) and the price at which the
item was bought (cost of the item). The formula below may be used:

Profit/Loss = Selling Price - Cost

Note that a positive value indicates profit, while a negative value indicates loss.

In the business context, gross profit is obtained when the net sales is greater than the cost of
goods sold. A net loss is incurred when the cost of goods sold is greater than the net sales. To
avoid loss in any business, the net sales should be high enough to cover the cost of goods sold,
operating expenses, possible deductions, taxes, and profit objective. Gross profit or loss can be
computed using the formula:

Gross Profit/Loss = Net Sales - Cost of Goods Sold

Net Sales = Gross Sales - Sales Return and Allowances and Discounts

Determining the Cost of Goods Sold

It’s a must for any business to determine its profits (or losses) periodically (e.g. quarterly or
annually). To calculate profit or loss, the cost of goods sold during a particular period is needed.

To calculate the cost of goods sold, you may use these formulas:

Available Goods for Sale = Beginning Inventory + Purchase

Cost of Goods Sold = Available Goods for Sale - Ending Inventory

Note: Inventory refers to the goods that a business holds for the purpose of selling to the
customers. To operate a business effectively, inventor must be accurately counted and valued at
the end of each accounting period.
Example:
At the beginning of a certain year, the inventory of Bela’s Skin Care and Spa was Php 175,
364.21, and the purchases during the year amounted to Php 50,789.64. At the end of the year, the
manager had checked that they have remaining inventory of Php 75, 643.89. Determine the cost
of goods sold.
Solution:
Available Goods for Sale = Beginning Inventory + Purchases
= Php 175, 364.21 + Php 50, 789.64
= Php 226, 153.85

Cost of Goods sold = Available Goods for Sale - Ending Inventory

= Php 226, 153.85 - Pp 75, 643.89
= Php 150, 509.96
Determining the Net Sales
Sales are crucial to the success of any business. It is important that you understand the difference
between gross sales and net sales. Gross sales refer to the total amount of goods or services sold
(without deductions yet), while net sales indicate the amount of sales after deducting the sales
returns, allowances, and discounts.
(Solano, 2020) Net sales can be determined by using this formula:
Net Sales = Gross Sales - Sales Returns, Allowances and Discounts

Example 1:
Itaewon Co. Had gross sales amounting to Php 1,250,000 and sales returns of Php 269, 708. How
much were the net sales of the specialty store?

Solution:
Net Sales = Gross Sales - Sales Returns
= Php 1,250,000 - Php 269, 708
= Php 980, 292.00

Example 2:
If a rice dealer’s net sales for the month of Jun was Php 89,564 and his gross sales was Php 98,
750, how much was his sales returns an allowances?

Solution:
Net Sales = Gross Sales - Sales Return and Allowances
Php 89, 654.00 = Php 98, 750 - Sales Return and Allowances
Sales Return and Allowances = Php 98, 750 - Php 89, 564 = Php 9, 186.00

Determining the Gross Profit

Gross Profit is the amount left from the net sales after deducting the cost of goods sold or
services sold. To compute the gross profit, use the formula:
Gross Profit = Net Sales - Cost of Goods or Services Sold

Example:
You own a ramen stand that earned a gross profit of Php 67, 325 for May. How much is your
cost of goods sold if your ramen stand had net sales of Php 99, 578?

Solution:
Gross Profit = Net Sales - Cost of Goods Sold
Php 67, 325 = Php 99, 578 - Cost of Goods Sold
Cost of Goods Sold = Php 99, 578 - Php 67, 325 = Php 32, 253.00

Determining Net Profit/Loss

Net profit or net loss is the amount left after subtracting all the operating expenses from the gross
profit. A positive value indicates that net profit is obtained. This is the result when the gross
profit is greater than the operating expenses. However, when you obtain a negative value
because the operating expenses are greater than the gross profit, a net loss is incurred instead of a
net profit. ( Solano, 2020) It can be determined using the formula:
Net Profit/Loss = Gross Profit - Operating Expenses
Example:
You have put up a diner and on the first month of operation, you incurred a net loss of Php 7,
865. If your operating expenses for the first month amounted to Php 37, 468, how much was
your gross profit then?
Solution:
Net Loss = Gross Profit - Operating Expenses
- Php 7, 856 = Gross Profit - Php 37, 468
Gross Profit = Php 37, 468 - Php 7, 865 = Php 29, 603.00

BREAK-EVEN ANALYSIS
“When will my business break-even?” This is one of the
biggest questions you need to answer when you’re starting a
business and that’s why it’s so crucial to conduct a break-
even analysis, which helps you determine fixed costs (like
rent) and variable costs (like materials) so you can set your
prices appropriately and forecast when your business will
become profitable. Central to the break-even analysis is the
concept of the break-even point (BEP).

Most business firms sell something. They may either sell a physical commodity like coffee or a
service like a mobile phone repair. The amount of money the firm receives for the sale of goods
or payment for the services they render is called revenue. On the other hand, the amount of
money the firm pays for production or the expense they spent for the product they offer is called
cost. The difference between the revenue and cost is called the profit (Revenue-Cost=Profit).
When costs exceed revenue, there is a negative profit or loss.

Since profit, revenue, and cost are functions of the variable x, we usually use the function
notation P(x) for profit, R(x) for revenue, and C(x) for cost.
P ( x ) =R ( x ) −C(x )

There are cases when the price of a product are also expressed as a function Q(x). Hence,
R ( x )=Q ( x ) ∙ x Usually, the price Q(x) represents the demand function which relates to the price
and the quantity demanded. The demand function is a decreasing function since at higher prices,
less will be purchased. The cost is usually composed of 2 parts: fixed costs and variable costs.

Fixed costs include such things as rent, basic telephone expenses, and utilities, wages of
employees, loan or lease payments, and other necessary expenditures that remain the same no
matter how much the product is manufactured or sold.
Variable costs include expenses on raw materials, direct labor, and energy that vary or change
directly with the amount of product produced and sold.

It follows that the cost function C(x) is expressed as

C ( x )=V ( x )+ FC ( x )
Where V(x) represents the variable cost function, and FC(x) represents the fixed cost function.
The variable cost function is obtained by multiplying the cost to produce each item by the
variable x while the fixed cost function is a constant function.

What is BREAK-EVEN ANALYSIS?

- a means of determining the break-even point or the point at which the total revenue is equal to
the total cost. Break-even analysis needs an estimation of fixed cost, variable cost and
revenue.
* Fixed Costs - remains the same regardless of the number of units produced/sold
* Variable Costs - costs that vary with the number of units produced
* Revenue - income obtained by producing or selling a certain number of units

What is break-even point?

A business’s break-even point is the stage at which revenues equal costs. Once you determine
that number, you should take a hard look at all your costs — from rent to labor to materials — as
well as your pricing structure. Then ask yourself these questions: Are your prices too low or
your costs too high to reach your break-even point in a reasonable amount of time? Is your
business sustainable?

Calculating your break-even point

There are a few basic formulas for determining a business’s break-even point. One is based on
the number of units of product sold and the other is based on points in sales.

• To calculate a break-even point based on units: Divide fixed costs by the revenue per unit
minus the variable cost per unit. The fixed costs are those that do not change no matter
how many units are sold. The revenue is the price for which you’re selling the product
minus the variable costs, like labor and materials.
Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)

• When determining a break-even point based on sales: Divide the fixed costs by the
contribution margin. The contribution margin is determined by subtracting the variable
costs from the price of a product. This amount is then used to cover the fixed costs.
Break-Even Point (sales) = Fixed Costs ÷ Contribution Margin
Contribution Margin = Price of Product – Variable Costs

To get a better sense of what this all means, let’s take a more detailed look at the formula
components.
•Fixed costs: As noted above, fixed costs are not affected by the
number of items sold, such as rent paid for storefronts or production
facilities, computers, and software. Fixed costs also include fees paid for services like graphic
design, advertising, and public relations.
•Contribution margin: The contribution margin is calculated by subtracting an item’s variable
costs from the selling price. So if you’re selling a product for
Php 100 and the cost of materials and labor is Php 40, then the contribution
margin is Php 60. This Php 60 is then used to cover the fixed costs, and if there is any
money left after that, it’s your net profit.
• Contribution margin ratio: This figure, usually expressed as a percentage, is calculated by
subtracting your fixed costs from your contribution margin. From there, you can determine
what you need to do to break even, like cutting production costs or raising your prices.
• Profit earned following your break even: Once your sales equal your fixed and variable
costs, you have reached the break-even point, and the company will report a net profit or loss
of Php 0. Any sales beyond that point contribute to your net profit.

EXAMPLES:

a) Graphical Method
b) Algebraic Approach
Total Revenue=Total CostTotal Revenue=Units Sold × Selling Price per Unit
Total Cost =Total ¿ Cost + Total Variable Cost
Total Variable Cost =Units Sold ×Variable Cost per Units
c) Using Formulas
BEP∈Units=Total ¿Cost ¿
( Selling Price−Variable Cost )
BEP∈ Peso=Total ¿ Cost ¿
Variable Cost
1−
Selling Price

EXAMPLE 1:
Suppose a firm manufactures hand towels and sells them for Php 75 each. If the costs incurred in
the production and sale of the hand towels are Php 200,000 plus Php 25 for each hand towel
produced and sold, do the following:
Given:
Selling Price=Php 75Variable Cost =Php25 per Unit¿ Cost =Php200,000
 a. Write the revenue function, cost function, and profit function
for the production and sale of x hand towels.
R ( x )=75 ( x ) −revenue functionC ( x )=25 ( x ) +200,000
P ( x ) =75 ( x ) −( 25 x +200,000 ) P ( x ) =50 x −20,000

Revenue Total Cost

75(500)= 37,500 25(500) + 200,000 =212,500
75(1000)= 75,000 25(1000) + 200,000 = 225,000
75(1500)= 112,500 25(1500) + 200,000 = 237,500
75(2000)=150,000 25(2000) + 200,000 = 250,000
75(2500)=187,500 25(2500) + 200,000= 262,500
75(3000)=225,000 25(3000) + 200,000 = 275,000
75(3500)=262,500 25(3500) + 200,000 = 287,500
75(4000)=300,000 25(4000) + 200,000 = 300,000

b. Graph the revenue, cost, and profit function on one graph.

 c. Find the break-even point.
200,000
R ( x )=C ( x )75 x=25 x+ 200.00050 x=200,000 x= x=4,000
50
The break-even point is at x=4,000 hand towels.

EXAMPLE 2:
The cost of producing PRODUCT A consists of Php 45 for labor, Php 54 for materials, and other
variable costs of Php 1.PRODUCT A can be sold for Php 150 each. The total fixed cost is Php
150,000 per month. Determine how many units of PRODUCT A must be sold to break even.
What is the BEP in pesos of PRODUCT A?

Given:
Selling Price=Php 150 per UnitVariable Cost [ V ( x ) ] =Php 45+ Php54 + Php1=Php100
¿ Cost [ FC ( x ) ]=Php150,000 per month
a. ALGEBRAIC APPROACH
Let x be the number of units ¿ be sold ¿ break evenTotal Revenue=Total Cost
Unit Selling Price [ SP ( x ) ] =Total ¿ Cost +Total Variable Cost [ TFC +TVC ( x ) ]
50 x 150,000
150 x=150,000+100 x150 x−100 x=150,000 = x=3,000 units−BEP ∈UNITS
50 50
BEP∈Pesos=Php150 ×3,000 unitsBEP∈ PESOS=php 450,000

b. Using the Formulas

BEP∈Units=Total ¿Cost ¿ 150,000
BEP∈Units=
Selling Price−Variable Costs 150−100
BEP∈ Pesos=Total¿ Costs ¿
BEP∈Units=3,000 units Variable Costs
1−
Selling Price
150,000
BEP∈ Pesos=
100 BEP∈Pesos=Php 450,000
1−
150

KEY POINTS TO CONSIDER:

• Mark-on is the difference between the selling price and the cost of the product or service.
• Markup is used by others to refer to additional markup.
• Markup and margin are not the same.
• Markdown is the amount of reduction in the selling price of a product or service.
• Markdown and discount are not the same
• Discount is the amount deducted from the selling price of a product or service which can
either be trade or cash discounts.
• Trade discounts are given by manufacturers to encourage retailers or customers to purchase a
product
• They may be single trade discount or trade discount series.
• Cash discounts are given to encourage customers to pay in cash.
• Profit and loss are important concepts in the financial evaluation of a business. They guide
managers and entrepreneurs in making critical decisions about the future of the company.
• Profit can only be achieved if you maintain your gross sales to be greater than the operating
expenses.
• It is important that you know the break-even point of your business, which is the amount
where your total revenue is equal to your cost. In this way, you can think of preventive
measures to avoid incurring losses such as promotional activities or marketing strategies to
boost your sales or increase your market share.

Commissions
What is a commission?
A commission is the amount of money a salesperson receives based on the level of his or her
sales. This amount is based on 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.
A commission is a payment used mainly for salespeople. Many companies have employees
who are paid either totally or partially on a commission basis. People who sell insurance, real
estate, and automobiles typically are in this category. The commission paid is usually calculated
as a percentage of the value of goods sold.
Those whose entire pay is through commission are said to work on straight commission.
Those who receive a base salary plus a commission are said to work on a salary-plus-
commission basis
Commission= Amount Sold × Rate of CommissionTotal Gross Pay=Salary+ Commission

Some employers will pay a commission on any sale an employee makes above a certain
level, or quota. Often, these employees will earn a salary or hourly rate in addition to the
commission.
Commission= ( Amount Sold −Quota ) × Rate of Commission
Total Gross Pay=Salary + Commission
Companies may provide additional incentives using graduated commission rates. An
employee who is paid a graduated commission is paid an increasing amount of commission as
the amount of sales increases.
Calculate each leve l ' s commission ; multiply each leve l ' s sales by the level ' s commission rate
Add the products computed∈the first step ¿ determine the commission
 The amount of percentage salespeople receive may vary from 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.

COMPUTING COMMISSIONS BASED ON CASH AND INSTALLMENT BASIS

A. ON CASH BASIS
Commission is computed on cash basis when a sale is completed. The commission is based on
cash received from the sale. Hence, it is a fee that a company pays to a salesperson in exchange
for his or her service in completing a sale.
Example:
Lucas works part-time as a real estate agent and earns a commission of 5% for the sales she
made. She was able to sell in cash three units of townhouses worth P1,409,640(corner unit),
P1,115,960(end unit), and P876,000(inner unit). How much will be her total commission?
Solution:
Total Sales = P1,409,640 + P1,115,960 + P876,000 = P3,401,000
Commission = Total Sales x Commission Rate
= P3,401,600 x 0.05 = P170,080
B. ON INSTALLMENT BASIS
Commission is computed on installment basis when sales involve periodic
payments rather than cash payments. This computation of commission is
commonly used by a company when the method of selling involves installment
transactions or credit terms.

Interest
What are interests and how are these used?
Interest refers to the amount paid for the use of money or the price paid for the use of credit.
Interest may also be viewed as income, like in banks. As a form of
income, it refers to the amount received as a result of the
possession or ownership of a contractual obligation to pay on the
part of another. It also serves as a mechanism of imposing penalty
to a borrower for not paying a matured financial obligation at a
specified time.

Whenever we invest our money, we are actually lending

money to a financial institution and we expect an interest in return.
Interest refers to money received for letting someone use our
money.
 Interest on loans of a year or less is frequently calculated as simple interest, a type of interest
that is charged on the amount invested (or borrowed) and not on past interest. The amount
borrowed is called the principal. The rate of interest is given as percentage per year, expressed as
a decimal. The time the money earns interest is calculated in years. If the money invested for one
year, interest is calculated by multiplying the principal times the interest rate. If the time that the
money earns interest is other than one year, we multiply the interest for one year by the number
of years.

The simple Interest (I) earned on a principal (P) in an account paying an annual interest rate (r)
for a length of time (t) is given by the formula:
I =Prt
A deposit of (P) pesos today at a rate of interest (r) for (t) years produces interest I =Prt . The
interest, added to the original principal (P), gives
P+ Prt=P (1+rt )
The amount is called the future value of (P) pesos at an interest rate (r) for time (t) in years.
When loans are involved, the future is often called the maturity value of the loan.
A=P ( 1+rt )
A sum of money that can be deposited today to yield some larger amount in the future is
called the present value of that future amount. Present value refers to the principal to be invested
or loaned, so we use the same variable (P) as we did for principal. In interest problems, (P)
always represents the amount at the beginning of the period, and (A) always represent the
amount at the end of the period. The formula for (P) may be obtained by using the future value
formula.
A=P ( 1+rt ) Dividing both sides by (1+rt) gives the following formula for the present value:
A
P=
( 1+rt )
Interest can be compounded more than once per year. Common compounding periods include
semiannually (2 periods per year), quarterly (4 periods per year), monthly (12 periods per year),
or daily (usually 365 periods per year). The interest rate per period (i) is found by dividing the
annual interest rate (r) by the number of compounding periods (m) per year.
r
A=P ( 1+i ) where i= ,∧n=mt
n
m
Present Value for Compound Interest:
A
∨P= A ( 1+i ) where i= r ∧n=mt
n
P= n
( 1+i ) m

There are three elements of interest computation:

1. Principal - the amount of money extended for credit or the money deposited in the bank for
safekeeping
2. Interest Rate - the charged amount for using the money over a
certain period
CLASSIFICATION OF INTERESTS RATES
Interest rates can be classified into nominal rate of interest or effective rate of interest.
a. Nominal Rate of Interest
- indicates the rate of interest and the number of interest periods per year.
- This rate of interest is computed by dividing the nominal interest rate by the number of
compounding periods per year
b. Effective Rate of Interest
- the actual or exact rate of interest on the principal during one year

3. Time - period covered from the time that the money is borrowed until its due date(maturity
date)

Illustrative Problem:
On March 1, 2012, Carly borrowed Php 5,000,000 from First Commercial Bank at 8%
interest, payable on March 1, 2014, to finance the construction of her manufacturing plant.
Based on the data, the principal amount is Php 5,000,000; the interest rate is 8% or 0.08 if
expressed in decimal; and the time is 2 years.

Two Types of Interest and How They are Computed

a. Simple Interest - refers to the interest computed only once from the time the amount is
borrowed until it is paid
The formula to compute for the simple interest is as follows:
Interest = Principal x Interest x Time or I=PRT

Let’s try!
On April 1, 2012, Angel borrowed Php 300,000 for additional working capital
from Premier Landing at 7% interest, payable in 1 year. Find the simple interest.
Answer and analysis:
It can be observed that the interest of 7% is payable only once from the time of
borrowing up to maturity date, hence, the interest is called simple interest.

In this case:
P=Php 300,000
R=7%
T = 1
year I
=?

Substituting the above values in the formula, the amount of simple interest is computed
as follows:
I = PRT
= 300,000 x 7%x 1
= Php 21,000

b. Compound Interest - refers to the sum of interests of prior periods computed on the original or
principal amount and each of successive periods on both the principal and interest. The
process of adding the interest due to the new principal in succeeding periods is called
 compounding of interest. The sum of the principal and all accumulated interests at the end of
the term is called compound amount.
The formula for compound interest is P (1 + r/n)^(nt), where P is the initial principal balance, r
is the interest rate, n is the number of times interest is compounded per time period and t is the
number of time periods.

Let’s try!
If an amount of $5,000 is deposited into a savings account at an annual interest rate of 5%,
compounded monthly, the value of the investment after 10 years can be calculated as follows...
P = 5000.
r = 5% (percent) = 5/100 (fraction) = 0.05 (decimal)
n = 12
t = 10.
If we plug those figures into the formula, we get the following:
A = 5000 (1 + 0.05 / 12) (12 * 10) = 8235.05.
So, the investment balance after 10 years is $8,235.05.

Annuities
What Is an Annuity?
A sequence of payments made at equal periods of time is what we call an annuity. It is is a
contract between you and an insurance company in which you make a lump-sum payment or
series of payments and, in return, receive regular disbursements, beginning either immediately or
at some point in the future.
The time between payments is the payment period, and the time from the beginning of the first
payment period to the end of the last period is called the term of the annuity. The future value of
the annuity, the final sum on deposit, is defined as the sum of the compound amounts of all the
payments, compounded to the end of the term. Thus, it is total amount of all deposits and all
interest earned by them.
What Is an Ordinary Annuity?
If the payments are made at the end of the time period, and if the frequency of payments is the
same as the frequency of compounding, the annuity is called ordinary annuity.
An ordinary annuity is a series of equal payments made at the end of consecutive periods over
a fixed length of time. While the payments in an ordinary annuity can be made as frequently as
every week, in practice they are generally made monthly, quarterly, semi-annually, or annually.
The opposite of an ordinary annuity is an annuity due, in which payments are made at the
beginning of each period. These two series of payments are not the same as the financial product
known as an annuity, though they are related.

KEY TAKEAWAYS:
By this time, perhaps you are convinced that sales and
commissions go together, they are inseparable. If you
decide to pursue a career in sales in the future,
commission will be your bread and butter or it could be
just part of your total compensation. Whether your dream
of joining the sales force or becoming an entrepreneur,
 the knowledge you acquired in this module about commission and how it is
computed will help you decide the sales commission or compensation plan
that is right for you or your salespeople.

Lesson 7: Salaries and Wages

1. SALARY
- associated with employee compensation quoted on an annual basis, such as Php 240,000 per
year. Often the salaries are paid semi-monthly. That is, one pay date will be the 15th day of the
month for working from the 1st to the 15th, and the other pay date will be the last day of the
month for working from the 16th to the last day of the month. example:
Let's assume that the manager of a company might earn a salary of PHP 240,000 per
year. If the manager is paid semi-monthly each paycheck will show a gross salary of
PHP 10,000 for half a month's work.

2. WAGES
- are usually associated with employee compensation that is based on the number of hours
worked multiplied by an hourly rate of pay. Generally, the employees earning hourly wages
will be paid in the week that follows the hours worked. example:
A warehouse employee works 40 hours during the work week. If the employee's hourly
rate of pay is Php 150, on the 5th day following the work week, the employee will
receive a paycheck showing gross wages of Php 6000 (40 x Php150). If the employee
had worked only 30 hours during the work week, the paycheck will show gross wages
of Php 4500 (30 x Php 150).

*Minimum Wage
- The lowest amount of money you are allowed to be paid for an hour of work as defined by the
law.
- The minimum wage rates are based on the regular working hours of eight hours a day.

An employee who is paid by the hour is referred to as a wage earner. The employee is paid at a
regular rate for a stated minimum number of hours (regular hours) and at a higher rate for extra
hours worked (overtime hours). He or she is also usually paid more per hour when working on
holidays, Sundays, evenings, etc. However, if he or she does not work, he or she does not get
paid (for example, if he or she misses a day of work or he or she works fewer hours). Wages are
made on an hourly, daily, weekly, or fortnight (every 2 weeks) basis and are calculated on the
total hours worked or the items produced.
Minimum wage is the lowest amount of money you are allowed to be paid for one hour of
work, as defined by law. The minimum wage rates are based on the regular working hours of 8
hours a day.
 Some employees are paid a salary, which is a fixed amount of money for each time period
worked, such as a day, week, month, or year. They are referred to as salaried employees. The
amount is determined usually in a contract which is signed before employments starts.
Salaried employees are paid the same amount every pay period, regardless of hours worked,
holidays, etc. They are not paid for any extra work they might do.
Salaries and wages vary depending on nature of work, location of work, and time of work.
Salaries for those working in cities are higher than for those working in the provinces. However,
laws have been enacted to give equitable compensation and benefits to employees, such as those
pertaining to minimum wage, health and insurance benefits, and a premium pays during
holidays.
• Allowances are special type of earnings given by a firm to meet special needs of the
employees. Example of allowances include travel, uniform, housing, meal, transporting, etc.
• Pay, income, earnings, and remuneration are general terms used to describe the payment
for work done.

Salaries and wages are important aspects in the life

of any working individual. Through the salaries or
wages that an individual receives, he or she is able to
provide for his or her needs and those of his or her
family. It is thus important that employees get paid
fairly and accurately because aside from passion, an
individual’s pay helps to keep them motivated to do
their work. The knowledge that you will be
acquiring in this module will be vital for you in the
future when you start to work and get paid, or when
you put up your own business and pay salaries and
wages to your employees.

3. INCOME/EARNINGS
- refers to the amount of money received by an individual for the work he or she has done
*GROSS EARNINGS
- also known as gross pay
- Refers to the amount an employee earns before any deductions for benefits or taxes
*NET EARNINGS
- also known as net pay
- Refers to the amount that an employee actually receives after all deductions have been
made

4. BENEFITS
- increase the economic security of employees and improve satisfaction and therefore retention
in the company
- Most kinds of employee benefits are taxable to at least some degree
- can be classified as either those which the employer must provide by law or those which the
employer offers as an option to compensate employees

GOVERNMENT-MANDATED BENEFITS COMPANY-INITIATED

BENEFITS
Institutional Personal/Individual

- SSS / GSIS - 13th Month Pay - Leaves (Vacation, Sick,

- PhilHelath - Paternity Leave Emergency)
- HDMF (Pag-IBIG Fund) - Solo Parent Leave - Performance-based Increase
- Service Incentive Leave - Bonuses
- Allowances
- Offsetting and Undertime
- Loans
- De Minimis Benefits*
5. OVERTIME PAY
- money eared at an increased rate for working more than the usual number of hours in a week
- The Labor Code prescribes a maximum of 8 hours per day as the normal working
hours of employees, hence the additional compensation if the form of overtime pay is
paid for worked hours beyond 8 hours.

6. PAY PREMIUMS
- refers to he higher wages give to employees who work less desirable hours which includes
holidays, weekends, vacation days or rest days.

PAYSLIP
- a form an employer will give you that shows earnings for a defined pay period
Gross Earnings = Hourly Rate x Number of Hours Worked
Gross Earnings = Pay per Time Period x Number of Time Periods Worked
Gross Semi-monthly Earnings = Annual Salary / 24
Gross Biweekly Earnings = Annual Salary
Gross Earnings = Regular Pay + Overtime
 Gross Earnings = Sales Commission + Override Commission

PAYMENT FOR OVERTIME

Overtime pay vary according to the day the overtime work is performed a shown
below:
Day When Overtime is Performed Overtime Pay

Regular, beyond normal working hours (plus 25% of Hourly Rate x 1.25 x Number of Hours
hourly rate)

Regular night shift, between 10:00 pm and 6:00 am Hurly Rate x 1.25 x 1.10 = Hourly Rate x 1.375 x
(plus 10%) Number of Hours

Rest Day (plus 30%) Hourly Rate x 1.30 = Hourly Rate x 1.30 x Number of
Hours

Rest day, beyond 8 hours (plus 30%) Hourly Rate x 1.30 x 1.30 = Hourly Rate x 1.69 x
Number of Hours

Rest day night shift, between 10:00 pm and 6:00 am Hourly Rate x 1.30 x 1.30 x 1.10 = Hourly Rate x 1.859 x
(plus 10%) Number of Hours

Special Holiday (plus 30%) Hourly Rate x 1.30 = Hourly Rate x 1.30 x Number of
Hours

Special holiday, beyond 8 hours (plus 30%) Hourly Rate x 1.30 x 1.30 = Hourly Rate x 1.69 x
Number of Hours

Special Holiday Night Shift, betwen 10:00 pm to 6:00 am Hourly Rate x 1.30 x 1.30 x 1.10 = Hourly Rate x 1.859 x
(plus 10%) Number of Hours

Special Holiday and Rest Day (plus 50%) Hourly Rate x 1.50 = Hourly Rate x 1.50 x Number of
Hours

Special Holiday and rest day, beyond 8 hrs (plus 50%) Hourly Rate x 1.50 x 1.30 = Hourly Rate x 1.95 x
Number of Hours

Special holiday and rest day, night shift (plus 10%) Hourly Rate x 1.50 x 1.30 x 1.10 = Hourly Rate x 2.145 x
Number of Hours

Legal Holiday, beyond 8 hours (200% plus 30%) Hourly Rate x 2.00 x 1.30 = Hourly Rate x 2.60 x
Number of Hours

Legal Holiday, night shift (plus 10%) Hourly Rate x 2.00 x 1.30 x 1.10 = Hourly Rate x 2.86 x
Number of Hours

Legal holiday and rest day (plus 30%) Hourly Rate x 2.00 x 1.30 = Hourly Rate x 2.60 x
Number of Hours

Legal Holiday and rest day, beyond 8 hours (plus 30%) Hourly Rate x 2.00 x 1.30 x 1.30 = Hourly Rate x 3.38 x
Number of Hours
 Legal holiday and rest day, night shift (plus 10%) Hourly Rate x 2.00 x 1.30 x 1.30 x 1.10 = Hourly Rate x
3.718 x Number of Hours

THERE ARE 2 TYPES OF DEDUCTIONS

1. Statutory Deductions
2. Voluntary Deductions

Under statutory deductions are the following:

1. Social Security System
The Social Security System (SSS) is the agency that implements a social security program
for the private sector or voluntary citizens, while the Government Service Insurance
System (GSIS) does the same for the employees of the government sector. Both agencies
have the same goal which is to provide employees with benefits and protection. Below is the
updated
SSS Contribution Schedule. You can also find it here: https://www.sss.gov.ph/sss/
DownloadContent?fileName=2019_Contribution_Schedule.pdf

2. PhilHealth
Employees who are members of SSS are automatically covered by the national health
insurance program of the Philippine Health Insurance Corporation (PhilHealth). Both
employees and employers are to contributw for the medical insurance/benefits of the
employees in accordance with the schedule provided by PhilHealth. In 2019, PhilHealth set
a new contribution table. See full details at https://www.philhealth.gov.ph/news/2019/
new_contri.php#gsc.tab=0 . For this year, PhilHealth’s premium rate is at 3%.
Example:
Determine the employee’s PhilHealth contribution that will be deducted if his regular
monthly compensation is Php 21,000. How much will the employer’s contribution
counterpart? What is the total monthly contribution that will be credited in the employee’s
PhilHealth contribution?
Solution:
Using the PhilHealth Contribution Table found at their website, the employee’s PhilHealth
contribution is Php 315.00 while the employer’s contribution counterpart is also Php 315.00. The
total monthly contribution that will be credited in the employee’s PhilHealth contribution is Php
630.00.

3. Home Development Mutual Fund (HDMF)

- more popularly known as Pag-IBIG (Pagtutulungan sa Kinabukasan: Ikaw, Bangko,
Industriya, Gobyerno) Fund
- A mutual provident savings system for private and government groups
- Similar to SSS and PhilHealth, Pag-IBIG coverage is also compulsary for all employees
and both the employee and employer will pay monthly premiums
- refer to pages 220-221 for the example
4. Withholding Tax
- the amount deducted by the employer from the employee’s salary or wages which the
former uses to pay in advance the income tax imposed by the government.
- The updated withholding tax table is found below. You will be needing it in your
computations later on.
BENEFITS OF A WAGE EARNER
A wage earner receives benefits that are government mandated and considered nontaxable
(SSS, PhilHealth, and Pag-IBIG Fund). In addition to these are those on pages 214-215 of
your book. *Fringe Benefits
- refers to a special kind of benefit in cash or in kind provided by the employer in addition to
salaries and wages.
- Usually a business-related expense on the part of the company that personally benefits an
employee in relation to his or her employment
- Include company car, use of company driver, housing provision, membership fees in
organization, travel expenses educational assistance, insurance premiums, and many more
- If the receiver of the benefit is a rank and file, withholding tax on compensation will be
applied
- These benefits which are provided to managerial and supervisory employees are subject to a
fringe tax benefits of 32% which must be withheld and paid the same by the employer
- Non-taxable benefits given to managerial and supervisory employees that are not taxable
include those authorized and exempt under special laws, contributions of employers for the
 retirement, insurance, and hospitalization plans of the employees, collective bargaining
agreement benefits, and de minimis benefits. *De Minimis Benefits (refer to page 215 for
the definition)
- please be guided by the following changes with items in De Minimis benefits under the Tax
Reform for Acceleration and Inclusion (TRAIN) Law:
a. Monetized unused vacation leave credits to employees not exceeding ten (10) days during the
year;
b. Monetized value of vacation and sick leave credits paid to government officials and
employees;
c. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per
semester of P250 per month;
d. Rice subsidy of P2,000 or one sack of 50kg rice per month amounting to not more than
P2,000;
e. Uniform and clothing allowance not exceeding P6,000 per annum;
f. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance, and routine consultations, not
exceeding P10,000.00 per annum;
g. Laundry allowance not exceeding P300 per month;
h. Employees achievement awards, e.g. for length of service or safety achievement, which in the
form of a tangible personal property other than cash or gift certificate, with an annual
monetary value not exceeding P10,000 received by the employee under an established written
plan which does not discriminate in favor of highly paid employees;
i. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
j. Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the
basic minimum wage;
k. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total annual monetary value received from
both CBA and productivity incentive schemes combined do not exceed ten thousand pesos
(Php 10,000.00) per employee per taxable year.

Example Problems:
A. GROSS EARNINGS
1. Carly Jean’s time card shows that he has worked this week for these number of
hours (hr): 7 hrs (Monday), 7.5 hrs (Tuesday), 6 hrs (Wednesday) and 8 hrs
(Friday).
At a pay rate of Php 224 an hour, how much will be the gross earnings?
Solution:
Total Number of Hours Worked = 7 + 7.5 + 6 + 8 = 28.5 hrs
Gross Earnings = Hours Worked x Hourly Rate
Gross Earnings = 28.5 x Php 224 = Php 6, 384
2. Franco has to decide whether to accept a job that offers him an annual salary of
Php 250,000. If she will be paid semi-monthly, what will be his gross semi-
monthly pay or earnings?
Solution:
Gross Semi-monthly Earnings = Annual Salary/24
Gross Semi-monthly Earnings = Php 250,000/24 = Php 10, 416.67
3. If Ali earns the same amount of annual salary of Php 250,000 but is being paid
biweekly, how much is her gross biweekly earnings?
Solution:
Gross Biweekly Earnings = Annual Salary/26
Gross Biweekly Earnings = Php 250,000/26 = Php 9,615.38

4. Belle receives a regular wage of Php 150 per hour. If she has worked 52.50 hr
last week, how much will be her gross earnings for the week if she is paid an
additional of 25% of his hourly wage for regular overtime work?

Solution:
Regular Pay = Hourly Rate x Number of Regular Hours Worked
= Php 150 x 40 = Php 6,000
Number of Overtime Hours Worked = Total Hours Worked - Regular
Hours Worked = 52.40 - 40 = 12.50

*Note: The Department of Labor and Employment mandated an additional 25%

of the hourly rate as overtime rate for regular overtime or for beyond regular
working hours.) Overtime Rate = Hourly Rate + 0.25 Hourly Rate

By factoring:
Overtime Rate = Hourly Rate (1+0.25)
= Hourly Rate x 1.25
= Php 150 x 1.25 = Php 187.50

Overtime Pay = Overtime Pay x Number of Overtime Hours Worked

= Php 187.50 x 12.50 = Php 2, 343.75

Gross Earnings = Regular Pay + Overtime Pay

= Php 6,000 + Php 2, 343.75 = Php 8, 343.75

5. (PROBLEM INVOLVING PAY PREMIUMS) Bea earns a daily wage of Php

980.84. Her regular working hours are from 7:00 am - 4:00 pm with one hour break,
and her rest day is Sunday. Her company allows flexitime [a system where
employees are allowed to choose when to begin their work (usually between 7:00 and
10:00 am) as long as they complete the required 8 hours of work per day, with a one-
hour lunch break]. Compute her daily gross earnings based on her time record
using the following overtime rate formulas.
Rest Day, Regular 8 Hours (plus 30%) = Hourly Rate x 1.30 x Number of Hours
Rest Day, beyond 8 hours (plus 30%) = Hourly Rate x 1.30 x 1.30 x Number of Hours
Special Holiday (plus 30%) = Hourly Rate x 1.30 x Number of Hours
Legal Holiday, Regular 8 hours (200%) = Hourly Rate x 2.00 x Number of Hours
DATE DAY TIME IN TIME OUT

16-Dec Tuesday 7:00 am 4:00 pm

17-Dec Wednesday 7:00 am 5:00 pm

18-Dec Thursday 7:30 am 5:00 pm

19-Dec Friday 7:00 am 4:00 pm

20-Dec Saturday 7:00 am 4:00 pm

21-Dec Sunday (Rest Day) 7:00 am 5:00 pm

22-Dec Monday 7:00 am 4:00 pm

23-Dec Tuesday 7:00 am 7:00 pm

24-Dec Wednesday (Special 7:00 am 11:00 pm

Holiday)

25-Dec Thursday (Legal Holiday) NO WORK NO WORK

26-Dec Friday 8:00 am 4:00 pm

27-Dec Saturday 7:00 am 4:00 pm

28-Dec Sunday (Rest Day) NO WORK NO WORK

29-Dec Monday (Legal Holiday) 7:00 am 5:00 pm

30-Dec Tuesday 7:00 am 4:00 pm

31–Dec Wedesday (Special NO WORK NO WORK

Holiday)

SOLUTION:
DATE DAY TIME TIME TOTAL
REG.
OT OT COMPUTATION DAILY
GROSS
DAILY
IN OUT GROSS
HRS. EARNINGS
OF COMPUTATION EARNINGS
WORK

16-Dec Tuesday 7:00 am 4:00 8.00 ₱980.84

pm
 17-Dec Wednesday 7:00 am 5:00 8.00 1 hr. 980.84/8 =122.61 980.84 + ₱1,143.10
pm 122.61 x 1.25 x 1 153.26
=
153.26
18-Dec Thursday 7:30 am 5:00 8.00 0.5 hr. 153.26 x 0.5 = 980.84 + ₱1,057.47
pm (Adjusted 76.63 153.26
Regular
Hours 7:30
am - 4:30
pm)

19-Dec Friday 7:00 am 4:00 8.00 ₱980.84

pm
20-Dec Saturday 7:00 am 4:00 8.00 ₱980.84
pm
21-Dec Sunday 7:00 am 5:00 8.00 1 hr. 122.61 x 1.30 = ₱1,482.30
(Rest Day) pm 1,275.09 + 207.21

22-Dec Monday 7:00 am 4:00 8.00 ₱980.84

pm
23-Dec Tuesday 7:00 am 7:00 8.00 3 hrs. 153.26 x 3 = 980.84 + ₱1,440.62
pm 459.78 459.78

24-Dec Wednesday 7:00 am 11:00 4.00 122.61 x 1.30 = 159.39 x ₱637.57

(Special pm 159.39 4=
Holiday) 637.57

25-Dec Thursday NO NO 0 ₱980.84

(Legal WORK WORK
Holiday)

26-Dec Friday 8:00 am 4:00 7.00 122.61 x ₱858.27

pm 7=
858.27

27-Dec Saturday 7:00 am 4:00 8.00 ₱980.84

pm
28-Dec Sunday NO NO 0 ₱0.00
(Rest Day) WORK WORK

29-Dec Monday 7:00 am 5:00 8.00 1 hr. 122.61 x 2 x 1.3 x 1,961.68

(Legal pm 1 + 318.79
Holiday) = 318.79 =
2,280.47

30-Dec Tuesday 7:00 am 4:00 8.00 ₱980.84

pm
31–Dec Wedesday NO NO 0 ₱0.00
(Special WORK WORK
Holiday)

TOTAL ₱15,756.68

Kaye receives a monthly basic salary of Php 21, 333.33, transportation allowance of Php 1,
750, and rice allowance of Php 1,500. Her overtime pay for the month amounted to Php
6,982.64. Her monthly contributions to Pag-IBIG Fund, PhilHealth, and SSS are Php 100,
Php 320, and Php 800, respectively. Her withholding tax for the month amounted to Php
2,146.53. How much are her gross and net earnings?
Solution:
Gross Earnings
Basic Salary Php 21, 333.33
Overtime Pay 6, 982.64
Transport Allowance 1, 750.00
Rice Allowance 1,500.00
Total Gross Earnings Php 31, 565.97
Deductions
Pag-IBIG Fund Contribution 100.00
PhilHealth Contribution 320.00
SSS Contribution 800.00
Withholding Tax 2,146.53
Total Deductions 3,366.53
Net Earnings Php 28, 199.44

GROSS PAY VS. NET PAY

Gross pay is the total amount earned by an employee. It consists of one type or a combination
of different types of remuneration. Gross pay may also be called total earnings or total pay.
Net pay is the amount received by the employee after deductions are made from the gross pay.
Gross pay=Hourly rate × Numbers of hours worked
Gross pay=Pay per time period × Number of time periods worked
PAYSLIP
A pay statement is a form of an employer will give you that shows earnings for a defined pay
period (could be weekly, biweekly, semimonthly, monthly, etc.). It shows gross pay, less total
deductions that includes all statutory deductions along with other voluntary deduction. After this
calculation, you will see your net pay.
COMPUTING PAY PREMIUMS
If you have a service industry job (retail, restaurant, fast food, etc.) you will likely have to
work on holidays. A different rate applies for all hours worked on a holiday or on a special (non-
working) day.
If an employee reported for work during holidays and rest days, he/she is entitled to an
additional premium on top of his daily/hourly rate.
• Rest Day: 130 % × hourly rate ; that is if the employee works, he/she shall be paid an
additional 30% of his hourly rate for the first 8 hours of work.
• Special (Non-working) Day: 130 % × hourly rate
 • Special (Non-working) Day that is also scheduled rest day: 150 % × hourly rate
• Regular Holiday: 200 % × hourly rate
• Regular Holiday that is also scheduled rest day: 260 % × hourly rate
• Double Holiday: 300 % × hourly rate
OTHER WAYS OF EARNING AN INCOME
Salary and wages are not the only ways to earn income. Other ways include self-employment
(a person who works for themselves rather than for an employer), piecework, commission (an
amount paid to someone for a business transaction), and service charges/tips
A. PIECEWORK
Piecework is work in which the employee is paid for each piece of quality item that he
completes. The wages are paid on a piece-rate basis, Piece rate is mainly used in factories.
Gross Pay=Number of Pieces produced × Piece rate
If employees are paid only for usable pieces produced, they get no pay for the pieces that
are rejected.
B. COMMISSION
Commission is an amount earned by an individual based on the sales he makes.
Companies set their own rates and schemes for commissions so set ups vary. Commission
becomes part of the employee’s income, sometimes it is their only income.
C. SERVICE CHARGES AND TIPS
An employee who work for a service establishment (hotels, restaurants, night clubs, etc.)
which charge an additional 10% to the customer’s bill is entitled to an equal share in the 85%
of the total of such charges. Not included are managerial employees. The establishment may
retain the remaining 15% to answer for losses and breakages.
If the establishment does not collect service charges but instead pools tips given
voluntarily by customers to the employees, the tips must be pooled and distributed in the
same manner as the service charges.