Lesson 4: Types of Commission PDF

Different Types of Commission  OBJECTIVES At the end of the learning module, you are expected to: 1. illustrate the different types of commission; and 2. compute commissions on cash basis and commission on installment basis.  Commission A commission is a fee paid to a person who makes a sal...

Different Types of Commission  OBJECTIVES At the end of the learning module, you are expected to: 1. illustrate the different types of commission; and 2. compute commissions on cash basis and commission on installment basis.  Commission A commission is a fee paid to a person who makes a sale. The amount of money received by an employee or agent for performing a business transaction or service. To compute for the commission, simply multiply the commission rate by the total sales amount. Example: Georgia works in a bakeshop. She gets a 5% commission of the total sales of bread and pastries and a basic monthly salary of Php10,000. What is her commission and her total pay for the month, if she sold Php18,000 worth of products? For Georgia’s commission, Given: Commission Rate = 5% Total sales amount = 18,000 5% of Php18,000 = 0.05 x Php18,000 = Php 900 To solve for her total pay for the month, Php10,000 + Php900 = Php10,900  There are 3 different types of commission 1. Straight Commission 2. Graduated Commission 3. Salary Plus Commission  Straight Commission is when a sales agent is paid a percentage of sales only. Example Harry receives 30% commission on the appliances he sells. If he sells a TV for 350.00, a Refrigerator for 400.00 and a heater for 440.00, how much does Harry make in commission? Given: Quantity sold: 350 = TV 400 = Refrigerator 440 = Heater Solution: Quantity sold (350 + 400 + 440) = 1190 Commission = 1190 x.3 = 357 Example Zara is an online seller and receives 7.5% on her monthly sales without a base salary. She sells 5 laptops for Php27,500 each, 6 cellphones for Php9,800 each, 15 earphones for P250 each, and 9 bluetooth speakers for Php450 each in a month. One of her customers cancelled an order worth Php36,500 and returned the gadgets and accessories which was already delivered. What is her commission and total pay during a month? Solution: For Zara’s total sales, 5(Php27,500)+6(Php9,800)+15(Php250)+9(Php450)= Php204,100 Example There are instances at which goods are returned and orders are cancelled. If it happens, the sale is not eligible for a commission. With that, we compute for the commission as follows: Php36,500 is subtracted from the total sales, Php204,100 – Php36,500 = Php167,600 So from Php167,600 sale, the commission is computed as Commission = 0.075(Php167,600)= Php12,570  Graduated Commission A structure might be used by a business in order to provide sales staff on commission with a greater incentive to increase sales volume. Also when the % changes based on how much someone sells. Example Jane has a monthly commission plan where she receives 3.5% on all her sales for the week. If her sales exceeds Php75,000, an additional of 2% commission is given to her. How much is her total commission during a week when she had total sales of Php126,500? Solution: Jane automatically earns a 3.5% commission on her sales Example Php126,500(0.035) = Php4,427.50 To compute her earnings from the additional commission Php126,500 – Php75,000 = Php51,500 Php51,500(0.02) = Php1,030 Jane’s total commission: Php4,427.50 + Php1,030=Php5,457.50  Salary Plus Commission is when a person gets paid a salary and a percentage of his/her sales. This is exactly as it sounds, a person gets paid a salary and a % of sales. Example Sean is paid a monthly salary of Php15,000 and earns a commission of 4.25% in sales. If he sold a total amount of Php65,238.34 during the month, how much is his gross? Solution: Sean’s commission computed as Php65,238.34(0.0425) = Php2,772.63 His gross pay for the month Php15,000 +Php 2,772.63 = Php17,772.63 Example Red decides to work for XYZ Company with a base salary of Php14,500 and gets 15% of everything he sells. If he received a total salary of Php19,000 for the month, how much is the worth of items did he sell? Solution: For Red’s commission Php19,000 – Php14,500 = Php4,500 The worth of items he sold is computed as n(0.15) = Php4,500 Php4,500 ÷ 0.15 = Php30,000 Computing Commission 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. Jen works as a real estate agent and earns 5.5% for the sales she made. How much will be her commission if she was able to sell two units of condominium worth Php1,203,520 and Php2,300,000. Computing Commission on Cash Basis Jen works as a real estate agent and earns 5.5% for the sales she made. How much will be her commission if she was able to sell two units of condominium worth Php1,203,520 and Php2,300,000. Solution: Jen’s total sales is computed as Php1,203,520 + Php2,300,000 = Php3,503,520 Her commission in selling two units of condominium Php3,503,520(0.055) = Php192,693.60  Computing Commission on Installment Basis Commission is computed on installment basis when sales involve periodic payments rather than cash payment. This computation of commission is commonly used by a company when the method of selling involves installment transaction or credit terms. This is viewed as effective in involving salespeople in collecting overdue accounts.  Xyz Appliance Store offers an installment basis through home credit. Mhai was able to sell appliances worth Php189,000 and is payable in 3 months equally divided into 3 installments without interest. She gets 2.4% commission on the first month of sales. Commission decreases by 0.25% every month thereafter and computed on the outstanding balance for the month. How much commission does Mhai receive on the first month? On the second month? On the third month? At the end of the installment period, how much will be her total commission? Solution: Mhai will receive a monthly installment of Php189,000 ÷ 3 = Php63,000 First month commission = Php189,000(0.024) = Php4,536 Second month commission = Php126,000(0.024-0.0025) Php126,000(0.0215) = Php2,709 Third month commission = Php63,000(0.0215-0.0025) Php63,000(0.019) = P1,197 Her total commission for three months is Php4,536 + Php2,709 + Php1,197 = Php8,442  Business opportunities are like buses. There's always another one coming. Richard Branson 21 Try This! Compute commission on cash basis and commission on installment basis. 1. John is a part-time real estate agent and earns a commission of 6.5% from the sales he made. He was able to sell in cash four units of town houses worth Php1,502,350 each (2 corner units), Php1,230,500 (center unit) and Php907,300 (inner unit). How much is his total commission? 2. Czarina is a sales agent for signature bags. She was able to sell a bag worth Php54,000 payable for 3 months and equally divided for 3 gives. If she will get a 3% commission for the first month and it increases by 1% every month thereafter and computed on the outstanding balance for the month. How much will be her total commission on 1st, 2nd the 3rd month? What is her total commission after 3 months?