Week 10 Commissions PDF

EMILIO AGUINALDO COLLEGE Philosophy Emilio Aguinaldo College is a private, non- sectarian, co-educational institution of learning that fosters equal and fair opportunities of education, the total development of our students, conscious of their national identity and their role in...

EMILIO AGUINALDO COLLEGE Philosophy Emilio Aguinaldo College is a private, non- sectarian, co-educational institution of learning that fosters equal and fair opportunities of education, the total development of our students, conscious of their national identity and their role in the global community. EMILIO AGUINALDO COLLEGE Vision Emilio Aguinaldo College envisions itself as an internationally recognized private non-sectarian academic institution rooted in the Filipino nationalist tradition that consistently pursues the advancement and welfare of humanity. EMILIO AGUINALDO COLLEGE Mission Emilio Aguinaldo College provides a learner-centered, inquiry-based, and socially relevant academic community. EMILIO AGUINALDO COLLEGE Core Values Virtue Excellence Service Commissions Learning Competencies: 1. Illustrate the different types of commissions. 2. Compute commissions on cash basis and commission on installment basis. Companies that employ sales agents usually develop a commission structure to provide incentives to them and to help meet the financial objectives of the company. This is to ensure that the sales agents are properly compensated to the revenue that they generate for the company. Commission- way of compensating employees who sell company’s commodities. Example No.1 Gabriel works on commission basis and receives 3.8% on his monthly sales for St. Peter Life plan without a base sale salary. What is his commission during a month when he sells 15 units of life plan worth 200,000 pesos per unit? Given: Commission Rate= 3.8% or 0.038 Amount Per unit= 200,000 pesos Number of Units Sold= 15 Total amount sales = 15 x 200,000 = 3,000,000 Commission= Commission rate x Amount Sales = 0.038 x 3,000,000 = 114,000 Thus,Gabriel’s total commission is 114,000 pesos Types of Commission Pay  Jerome works for a company that sell lamps.He is given of a salary of 15,000 pesos a month and a commission of 5% on his sales. If his sales for the month of September amount to 125,675.25, How much is his total income for the month? Salary Plus Commission- Employee is being paid a guaranteed salary plus a commission on total sales The common structure as presented in the problem is what is known as salary commission, where a sales agent is paid a predetermined salary and additional compensation in the form of commision. The structure ensures that the sales agent has taken a home pay. Meanwhile, his total income varies according to his performance that is the bigger his sales,the bigger commision will be Example No.1 Janey Dela Fuente works on a pay schedule of 21,300 pesos per month plus a 3% commission on all sales. If she sold 104,900 pesos last month what is her gross pay? Given: Salary= 21,300 Commission rate= 3% or 0.03 Amount Sales= 104,900 Commission= Commission rate x Amount Sales = 0.03 x 104,900 = 3,147 pesos Gross Pay = Salary + Commission = 21,300 + 3, 147 = 24,447  Jerome works for a company that sell lamps.He is given of a salary of 15,000 pesos a month and a commission of 5% on his sales. If his sales for the month of September amount to 125,675.25, How much is his total income for the month? Applying this to the given problem, since Jerome will be given a 5% commission oh his sales, then his commission for the month will be ? Commission = Commission Rate x Amount of sales =0.05(125,675.25) = 6,283.76 Total income for the month= Salary + Commission = 15000 + 6283.76 = 21, 283.76 Commission with Quota There are companies that require their perspective sales agents to provide a certain amount of sales per month to be able to keep their job. This prescribed amount of sales is known as quota. There are also companies that require a sales agent to meet a quota before he or she can avail of commission Illustrative Example: Jason is hired by a leading importer of electrical appliances to sell LED bulbs. He was told that he wil be given a monthly salary of 14,500 plus a 10% commission in excess of 10,000 pesos of sales. For the month of July,he was able to sell 32,000 pesos worth of LED bulbs. How much was his total income for the month? Since Jason was told that he gets 10% commission in excess of 10,000 pesos of sales, his quota every month is 10,000. It also implies that he will not get commission for the first 10,0000 pesos of sales and will only be given commission on sales beyond the quota. Thus, Commission = Commission rate x No of sales in excess of quota = 10% ( 32000-10000) = 0.10 (22000) = 2,200 pesos Total income for the month= Salary + Commission =14500 +2200 = 16,700 pesos Straight Commission For beginners, salary plus commission may not be the ideal structure as there is pressure to meet a prescribed quota. For this reason, another commission is paid on each sales transaction. This is known as straight commission. Under this structure, a sales agent who fails to sell the product for a certain period of time, i.e., for inclined to fire them for poor performance since there is no cost on the part of the company to maintain the sales agent. Illustrative Example Jerry was hired to sell a brand of air-conditioning unit with the undesrtanding that he gets 15% commission. For the month of April, he was able to sell three air-conditioning units priced 18,900 pesos,28,753 pesos and 23,576 pesos respectively. How much was his commission for the month? Since, He gets commission on all sales, his commission was Commission= Commission Rate x No. on all sales = 15% (18900 + 28753 + 23576) = 15 % ( 71229) = 10,684.35 Illustrative Example No.2 To increase the revenue , a motorcycle dealer decided to give 12% commission to all his sales agents on every unit they can sell. During the month of December , Johnny was able to sell a unit worth 65,800 pesos on the first week , 67,000 pesos worth of motorcycle on the second week and another unit worth 72,500 pesos on the third week. Find his total commission for the month of December? Total sales on December: 65,800 + 67,000 + 72,500 = 205,300 Total commission for December = 205,300.00 x 0.12 = 24,636  Graduated Commission Graduated commission is a type of commission structure where the rate of commission increases as the salesperson reaches or surpasses specific sales targets or thresholds. There are also companies that design commission structures taking into consideration the performance of the sales agents. As a result, Commission rates increase as sales volume increases. This is known as graduated commission and intended to provide bigger sales volume to the company. Illustrative Example Jaycee works for a company that sells herbal medicine. For the month of October , his sales totaled 62,785. If his contract states that he gets 10% commission on the first 30,000 pesos, an additional 3% on the next 20,0000 pesos and an additional 2% for sales beyond that sales volume, how much was his commission for the month? Since the commission structure is 10% commission on the first 30,000 pesos an additional 3% on the next 20,000 pesos, and additional 2% for sales beyond that sales volume, his commission for selling 62,785 worth of herbal medicine was: Commission= 10% (30,000)+ (10 +3)%(20,000)+(10 +3 +2)%(62 785-30 000- 20 000) = 10% (30 000)+13% (20 000) + 15% (12785) = 3000 + 2600 + 1917.75 =7, 517.75 The commission structure under graduated commission varies from one company to another, or it may even be from sales agent to another. From the discussion it should be noted that computation of commission is based on the percentage formula, that is , percentage is base x rate. In this case , the total sales is the base, while the amount received by the sales agent is the percentage. Thus basically , Commission = Rate of Commission x Sales  Incremental Commission Given to sales person who do not receive a regular salary. Commission rate increases as the sales volume increases Incremental commission is a commission structure where the commission rate increases as the sales volume or total sales amount increases within a specific period.  Illustrative Example Evelyn De guzman sells OHP projectors for WSS Tech Products. She is on incremental commission schedule of 2.5% of sales up tp 100,000 pesos, 3% for the next 150,000 pesos and 4% on the sales greater than 250,000 pesos. What is Evelyn’s total gross pay for the last month if her sales volume was 300,000 pesos. Given: Commission Rate: (Level 1)= 2.5% or 0.025 Commission Rate: (Level 2)= 3% or 0.03 Commission Rate: (Level 3)= 4% or 0.04 Sales 1= 100,000 pesos Sales 2= 150,000 pesos Sales 3= 50,000 pesos Level Pay = Sales per Level x Commission Rate Level Pay 1 = 100,000 x 0.025=2500 Level Pay 2 = 150,000 x 0.03=4500 Level Pay 3 = 50,000 x 0.04=2000 Total Gross Pay = Level1 + Level2 + Level3 Total Gross Pay = 2500 + 4500 + 2000 Total Gross Pay = 9,000 pesos Commission with Override a salesperson earns commission on his/her own sales and also earns commission from the sales of his/her representatives. Illustrative Example: Teresita receives a 6% commission on her sales. She supervises 12 sales representatives and receives a 2.5% override on all their sales. The representatives made sales of 48,300 pesos and she made sales of 9,400 pesos. What were her earnings?  Given: Commission Rate( Teresita)= 6% or 0.06 Commission Rate ( Representatives= 2.5% or 0.025 Amount of Sales(Representatives) = 48,300 pesos Amount of sales (Teresita)= 9,400 pesos Commission= Commission Rate x Amount of Sales =0.06 x 9,400 = 564 Commission= Commission Rate x Amount of Sales =0.025 x 48,300 = 1207.50 Total Commission = Teresita’s Commission + Representatives Commission = 564 + 1,207.50 =1,771.50 Bonus Commission Salesperson is given a bonus if he or she exceeds his or her sales quota. Illustrative Example Leonora receives a basic salary of 13,750 pesos a month. She also receives a bonus of 5% of the amount by which she goes beyond her quota of 75,000 pesos. For the month of February, her sales amounted to 128,000 pesos. What were her total earnings? Given: Salary : 13,750 pesos Commission Rate = 5% = 0.05 Sales Subject to Commission 128,000- 75,000=53,000 pesos  Commission = Commission Rate x Amount of Sales = 0.05 x 53,000 = 2,650 pesos Gross Pay = Salary + Commission = 13,750 + 2,650 = 16,400 pesos  Answer the following: A salesperson earns a 5% commission on the first $10,000 of sales and 7% on any sales exceeding $10,000. What is the total commission earned for $15,000 of sales? If a sales representative's total sales for the month are $50,000 and the commission rate is 8%, what is the total commission earned? In a graduated commission structure, if a salesperson achieves $20,000 in sales, what would be the total commission earned if the rates are 5% for the first $10,000 and 7% for the next $10,000? A salesperson earns a 10% commission on all sales. If they sell products worth $25,000, what is the total commission earned? A sales team of five members is working on a project. If the team-based commission is 12% of the total sales and the total sales are $100,000, what is the total commission the team earns?  Answer the following: If a salesperson's total sales for the month are $60,000 and the commission rate is 6%, but there is also a bonus of $1,000 for exceeding $50,000 in sales, what is the total earnings? If a salesperson earns a 5% commission on each product sold, how much will they earn if they sell $5000 worth of products? A car salesperson receives a $500 commission for every car sold. How many cars must they sell to earn $3000 in commission? If a salesman earns 3% commission for the first $10,000 in sales and 5% for any sales thereafter, how much will they earn from $15,000 in sales? A consultant gets a 10% commission for the first $5000 in sales and 15% for any sales above that. How much will they earn from $8000 in sales? A sales agent receives a 5% commission for the first $500, and 8% for any sales over that. How much will they earn from $750 in sales? If an insurance agent earns 2% residual commission annually from a client's premium, and the premium is $2000 per year, how much commission will they earn in 5 years  Answer the following: If an insurance agent earns 2% residual commission annually from a client's premium, and the premium is $2000 per year, how much commission will they earn in 5 years? A subscription service pays its salespeople 10% of the subscription fee each month. If a customer pays $50 per month, how much will the salesperson earn in a year? A financial advisor earns 1% residual commission from a client's investment. If the client invests $50,000 initially and an additional $10,000 every year, how much commission will the advisor earn in 5 years? An employee has a base salary of $3000 per month and receives a 5% commission on sales. If they make sales worth $8000, what is their total earnings for the month? A salesperson has a base salary of $2500 per month and earns 4% commission on sales. If they make sales worth $10,000, what is their total earnings for the month? A marketing executive has a base salary of $4000 per month and earns 3% commission on sales. If they make sales worth $15,000, what is their total earnings for the month?  Answer the following: A retail employee earns a 2% commission on clothing items and a 5% commission on accessories. If they sell $2000 worth of clothing and $500 worth of accessories, how much will they earn in total? A travel agent earns 2% commission on domestic bookings and 5% on international bookings. If they make $4000 from domestic bookings and $2000 from international bookings, how much will they earn in total? A technology salesperson earns 3% commission on computers and 7% commission on software. If they sell $3000 worth of computers and $1000 worth of software, how much will they earn in total? A sales team is promised a 10% bonus if they exceed the monthly sales target of $50,000. If they achieve $60,000 in sales, what is the total bonus amount received by the team? An advertising firm offers a 5% bonus to its employees if they bring in new clients. If an employee generates $5000 from new client acquisitions, what is their total bonus amount? Commission on Cash Basis and on Installment Basis Although there is substantial difference between cash payment and installment payment as sellers tend to give discounts on cash payments, the same may not be true for commissions. Sales agents are paid based on the actual sales reagrdless of the mode pf payment. The commissions structure however varies with different type of sale like Commission on Life Insurance Sales Commission on Non-Life Insurance Sales Commission on Vehicle Sales In the case of insurance sales there are two types that must be considered ,life insurance and nonlife insurance.The agreement between the the insurance company ( INSURER) and the person or property being insured (INSURED) is called a policy. The policy will include the term of life span of the agreement , the amount to be paid for every year that the policy is enforced ( PREMIUM), and other items agreed upon by two parties - The premium is computed on a yearly basis may be paid annually or once every year, semi-annually or twice a year (every 6 months), or quarterly or every 3 months. Illustrative Example: A policy stipulates a premium of 50,000 pesos to be paid at the beginning of every 3 months and the commission rate is 30%. This means that the insured must pay 50,000 pesos premium every 3 months or 200,000 pesos for one year.The agent will be paid 15000 pesos for every payment on the premium made by the insured. Thus, at the end of the first year, the agent shall be paid of 30% commission or 60,000 peso. This agreement however will not apply for the subsequent years. The rate will drastically be reduced in the second year. Normally, the agent shall only receive 10% of the annual premium or 20000 on the second year of the policy, and only about 5% of the premium or 10,000 pesos on the third year. The maximum period of commission given to life insurance agents is 3 years. Illustrative Example No.2 Jonas an agent of Mitsuyota Phils.receives a 3,500 pesos agents incentive for every car he sells. He receives an additional sales agents commission of 2% On a particular day, he sold a car worth 1,500,000 pesos with a down payment of 20% or 300,000 pesos. Consequently, the amount to be financed which 1,200,000 pesos will be the basis of the sales agnts commission. Amount to be financed = 1,500,000x(100-20)% = 1,200,000 Commission= 1,200,000 x 2% = 24,000 pesos Total income from the sale of 1 car = 24,000 +3,500 = 27,500 pesos In the example given, a downpayment of 20% was mentioned. A down payment is an initial payment mad, usually in cash, combined with a mortgage from a financial n institution to fulfill the total purchase price of the commodity. As an incentive, a large downpayment may qualify one to a lower interest rate on the remaining gross balance of the loan. The gross balance is the amount to be financed.