COMMISSIONS

REVIEW ON COMMISSIONS

• DEFINE WHAT COMMISSION IS.

• A COMMISSION IS A FEE THAT A BUSINESS PAYS TO A SALESPERSON (AGENT) IN EXCHANGE
FOR HIS SERVICES IN EITHER FACILITATING, SUPERVISING, OR COMPLETING A SALE. THE
COMMISSION MAY BE BASED ON A FLAT ARRANGEMENT OR AS A PERCENTAGE OF THE
REVENUE GENERATED BY A SALESPERSON. IN OTHER WORDS, COMMISSION (REMUNERATION)
IS A FORM OF PAYMENT TO AN AGENT FOR SERVICES RENDERED.
 TYPES OF COMMISSION

• 1. STRAIGHT COMMISSION, ALSO CALLED (REVENUE COMMISSION) – A COMMISSION BASED

ON A PERCENTAGE OF SALES ONLY. (THIS IS VERY PROFITABLE IF YOU ARE SELLING HIGH-
TICKET ITEMS.)
• 2. SALARY PLUS COMMISSION – A COMMISSION IN WHICH A SALESPERSON GETS HIS BASIC
SALARY AND A PERCENTAGE OF WHATEVER SALES HE MAKES.
• 3. GRADUATED COMMISSION – A COMMISSION, WHICH VARIES ACCORDING TO HOW
MUCH SALES, IS MADE.
 COMPUTING COMMISSIONS ON CASH BASIS
• THIS TYPE OF COMMISSION IS SIMILAR TO COMPUTING STRAIGHT COMMISSIONS.

• EXAMPLE 1:
MIKE WORKS AT ABC GADGET STORE. FOR EVERY CASH PURCHASE OF A CELL
PHONE, HE GETS 6.1%COMMISSION. IN A PARTICULAR MONTH, HE WAS ABLE TO
SELL
10 CELLPHONES COSTING PHP18,000 EACH. HOW MUCH WAS HIS TOTAL
COMMISSION FOR SUCH CASH SALES?

• SOLUTION: TOTAL SALES = PHP18,000/CELLPHONE X 10 CELLPHONES = PHP180,000

CASH COMMISSION =PHP180,000 X 6.1% = PHP180,000 X 0.061 = PHP10,980
 COMMISSION ON INSTALLMENT BASIS
• EXAMPLE 2:
AT ABC GADGET STORE, SOME ITEMS ARE PAID ON INSTALLMENT BASIS
THROUGH CREDIT CARDS. MIKE WAS ABLE TO SELL 10 CELLPHONES COSTING
PHP18,000 EACH. EACH TRANSACTION IS PAYABLE IN 6 MONTHS EQUALLY
DIVIDED INTO 6 EQUAL INSTALLMENTS WITHOUT INTEREST. MIKE GETS 2%
COMMISSION ON THE FIRST MONTH FOR EACH OF THE 10 CELL PHONES.
COMMISSION DECREASES BY 0.30% EVERY MONTH THEREAFTER AND
COMPUTED ON THE OUTSTANDING BALANCE FOR THE MONTH. HOW MUCH
COMMISSION DOES MIKE RECEIVE ON THE FIRST MONTH? ON THE SECOND
MONTH? ON THE THIRD MONTH? ON THE FOURTH MONTH? ON THE FIFTH
MONTH? ON THE SIXTH MONTH? AT THE END OF INSTALLMENT PERIOD, HOW
MUCH WILL BE HIS TOTAL COMMISSION?
 COMMISSION ON INSTALLMENT BASIS
• SOLUTION: FIRST MONTH COMMISSION: PHP18,000/CELLPHONE X 10 CELLPHONES X
0.02 = PHP3,600
SECOND MONTH COMMISSION: PHP15,000/CELLPHONE X 10 CELLPHONES X (0.02 –
0.003) = PHP2,550
THIRD MONTH COMMISSION: PHP 12,000/CELLPHONE X 10 CELLPHONES X (0.017 –
0.003) = PHP1,680
FOURTH MONTH COMMISSION: PHP 9,000/CELLPHONE X 10 CELLPHONES X (0.014 – 0
.003) = PHP990
FIFTH MONTH COMMISSION: PHP 6,000/CELLPHONES X 10 CELLPHONES X (0.011 –
0.003) = PHP480
SIXTH MONTH COMMISSION: PHP3,000/CELLPHONE X 10 CELLPHONES X (0.008 – 0.003)
= PHP150
HIS TOTAL COMMISSION FOR SIX MONTHS IS PHP9,450.
 DEFINITION OF DOWN PAYMENT:

• DOWN PAYMENT IS A FIRST PAYMENT THAT ONE

MAKES WHEN ONE BUYS SOMETHING WITH AN
AGREEMENT TO PAY THE REST LATER.
 OBTAINING DOWN PAYMENTS
• EXAMPLE 1: WHEN ONE PURCHASES A CAR OR ANY BIG ITEM NOT THROUGH CASH BUT
INSTALLMENT TERMS, NORMALLY, A CERTAIN DOWN PAYMENT IS REQUIRED OF THE
BUYER. CAR DEALERS NORMALLY REQUIRE A MINIMUM DOWN PAYMENT, WHICH IS
USUALLY 20% OF THE TOTAL COST OF THE VEHICLE BEING PURCHASED. THE INTEREST
ON THE REMAINING BALANCE IS THEN COMPUTED DEPENDING ON THE NUMBER OF
YEARS A BUYER WOULD WANT TO AMORTIZE THE REMAINING BALANCE. IF A CAR
COSTS PHP1,000,000 AND A MINIMUM 20% DOWN PAYMENT IS REQUIRED BY THE
COMPANY, THEN THE BUYER WILL HAVE AN INITIAL CASH OUT OF PHP200,000; THAT IS,
20% (1,000,000) = PHP200,000. THE REMAINING PHP800,000 WILL BE AMORTIZED
MONTHLY AND THE AMOUNT OF MONTHLY AMORTIZATION DEPENDS ON THE NUMBER
OF YEARS THE BUYER WILL WANT TO PAY THE LOAN. NORMALLY, BUYERS PREFER A 3-
YEAR OR 5-YEAR PAYMENT PERIOD.
 OBTAINING DOWN PAYMENTS

• THE LESSER THE NUMBER OF YEARS, THE LESSER THE TOTAL

AMOUNT OF MONEY PAID AS INTEREST TO THE LOAN. BUT
WITH THIS ARRANGEMENT, THE MONTHLY AMORTIZATION
WILL BE CONSIDERABLY HIGHER THAN WHEN ONE
CHOOSES TO PAY THE BALANCE FOR LONGER NUMBER OF
YEARS.
 OBTAINING DOWN PAYMENTS
• EXAMPLE 2: COMPANIES SELLING HOUSES OR CONDO UNITS LURE BUYERS
BY STATING THAT NO DOWN PAYMENT IS REQUIRED BUT ONLY A CERTAIN
AMOUNT OF RESERVATION FEE IS REQUIRED. THE RESERVATION FEE PAID IS
DEDUCTIBLE WHEN THE BUYER DECIDES TO PROCEED WITH THE PURCHASE.
OTHERWISE, IT WILL BE FORFEITED IN FAVOR OF THE COMPANY. AFTER THE
RESERVATION FEE HAS BEEN PAID, THE BUYER IS TOLD TO PAY THE MONTHLY
AMORTIZATION. FOR INSTANCE, P10,000 PER MONTH FOR TWO YEARS
WITHOUT INTEREST. AT THE END OF TWO YEARS, THE REMAINING BALANCE
WILL NOW BE SUBJECTED TO AN INTEREST EITHER THROUGH IN-HOUSE OR
BANK FINANCING.
 OBTAINING DOWN PAYMENTS
• EXAMPLE 3: OTHER COMPANIES SELLING HOUSES OR CONDO
UNITS ALSO HAVE SCHEMES LIKE REQUIRING THE BUYER TO PAY A
CERTAIN CASH AMOUNT AFTER ONE YEAR ASIDE FROM THE
MONTHLY AMORTIZATION. THE CASH AMOUNT INCREASES FOR
THE NEXT YEAR UP TO THE THIRD YEAR. AT THE END OF THE THIRD
YEAR, ALL CASH AMOUNTS AND MONTHLY AMORTIZATIONS PAID
BY THE BUYER ARE DEDUCTED FROM THE PURCHASE PRICE OF THE
UNIT BEING BOUGHT. THE REMAINING AMOUNT WILL BE THE ONE
SUBJECTED TO AN INTEREST EITHER THROUGH IN-HOUSE OR BANK
FINANCING.
 DEFINITION OF BOOK BALANCE OR GROSS
BALANCE:
• THIS REFERS TO THE TOTAL AMOUNT OF MONEY A BANK HAS ON
DEPOSIT BEFORE ADJUSTING FOR UNCLEARED CHECKS OR
DEPOSITS, AS WELL AS RESERVE REQUIREMENTS. THAT IS, THE
BOOK BALANCE IS A MEASURE OF WHAT THE BANK HAS ON HAND
BEFORE ADDING OR SUBTRACTING REGULATORY OBLIGATIONS
AND ITEMS THAT WILL SOON APPEAR ON ITS BOOKS. THIS IS THE
TERM USED BY BANKS TO DESCRIBE THE AMOUNT OF MONEY
AVAILABLE BEFORE ANY ADJUSTMENT IS MADE FOR DEPOSITS IN
TRANSIT, CHECKS THAT HAVE NOT BEEN CLEARED, AND RESERVE
REQUIREMENTS AND INTEREST RECEIVED FROM “FLOAT FUNDS”.
 DEFINITION OF BOOK BALANCE OR GROSS
BALANCE:
• EXAMPLE 1: A SIMPLE CASE OF GROSS BALANCE REFERS TO
WHAT IS READILY AVAILABLE FOR YOU TO USE BASED ON YOUR
BANK DEPOSITS. FOR EXAMPLE, A CHECK AMOUNTING
TOPHP5,000 THAT HAS BEEN DEPOSITED TODAY MAY NOT BE
WITHDRAWN THE NEXT DAY BECAUSE IT HAS NOT CLEARED YET. IF
YOUR BANK PASSBOOK CURRENTLY CONTAINS PHP30,000, YOU
MAY NOT BE ABLE TO WITHDRAW THE WHOLE AMOUNT YET
BECAUSE YOUR GROSS BALANCE IS ONLY PHP25,000 SINCE
YOUR CHECK HAS NOT BEEN CLEARED YET.
 DEFINITION OF CURRENT INCREASED BALANCE:

• THIS MAY REFER TO THE TOTAL AMOUNT YOU HAVE TO PAY THAT INCLUDES PENALTIES OR
INTEREST INCURRED BY UNPAID BALANCE FROM A LOAN OR PAYMENT YOU ARE SUPPOSED TO
HAVE MADE BUT WAS NOT ABLE TO DO SO ON TIME.

• EXAMPLE 2: REFER TO EXAMPLE 9 OF THE INSTRUCTIONAL GUIDE FOR PROBLEMS INVOLVING

FRACTIONS, DECIMALS, AND PERCENT.
 CURRENT INCREASED BALANCE

• THE FOLLOWING IS EXAMPLE 9 REPRODUCED BELOW:

• AS OF THIS MONTH’S CUT-OFF DATE, THE CURRENT TOTAL AMOUNT DUE FROM YOUR
PURCHASES USING YOUR CREDIT CARD IS PHP 99,386.59. THE MINIMUM REQUIRED PAYMENT
IS 5% OF THE TOTAL AMOUNT DUE. IF YOU PAY ONLY THE MINIMUM REQUIRED PAYMENT, A
FINANCING CHARGE OF 3.4% OF THE REMAINING BALANCE WILL BE CHARGED TO THE NEXT
BILL. ASSUMING YOU REFRAIN FROM USING YOUR CREDIT CARD ON ANY OF YOUR
PURCHASES FOR THE NEXT 3 MONTHS AND THE FINANCING CHARGE OF 3.4% IS CHARGED
EVERY BILLING PERIOD, SHOW YOUR EXPECTED MONTHLY BILL FOR THE NEXT 3 MONTHS.
 CURRENT INCREASED BALANCE

• SOLUTION:GIVEN THE CURRENT BILL OF PHP 99,386.59, THE MINIMUM REQUIRED PAYMENT IS
0.05(99,386.59) = PHP4,969.33. IF ONLY THE MINIMUM REQUIRED PAYMENT IS PAID, THEN THE
REMAINING DEBT BALANCE IS 99,386.59 - 4,969.33 = PHP94, 417.26. ASSUMING THERE ARE
NO CREDIT BILL TRANSACTIONS FOR THE NEXT 3 MONTHS AND ONLY THE MINIMUM REQUIRED
PAYMENT EACH MONTH IS PAID, THE TABLE BELOW SHOWS THE MONTHLY TOTAL AMOUNT
DUE FOR EACH OF THE NEXT 3 MONTHS.
 CURRENT INCREASED BALANCE

• OBSERVE THAT FOR THE NEXT 3 MONTHS, A TOTAL OF PHP14,386.44 HAS ALREADY BEEN PAID FOR
THE CREDIT CARD BILLS. HOWEVER, ONLY PHP5,184.56 (99,386.59 - 94,202.03) HAS BEEN
DEDUCTED SO FAR FROM THE ORIGINAL DEBT OF PHP99,386.59. HENCE, EVERY TIME WE KEEP
PAYING ONLY THE REQUIRED MINIMUM PAYMENT, MORE MONEY GOES TO INTEREST PAYMENTS
RATHER THAN PAYMENT OF THE ACTUAL DEBT.

• FROM THE ABOVE EXAMPLE, YOUR MINIMUM REQUIRED PAYMENT OF PHP4,969.33 SERVES AS
YOUR DOWN PAYMENT FOR YOUR LOAN OF PHP99,386.59 LEAVING YOU WITH A BALANCE OF
PHP94,417.26 AT THE START OF THE MONTH. HOWEVER, BECAUSE THERE IS A FINANCE CHARGE OF
3.4%, IF YOU ARE NOT ABLE PAY FOR THE NEXT MONTH, YOUR CURRENT INCREASED BALANCE WILL
BECOME PHP97,627.45.
 CHECKING FOR UNDERSTANDING

• 1. JUAN MAKES MONEY BY COMMISSION RATES. HE GETS

15% OF EVERYTHING HE SELLS. IF JUAN SOLD PHP230,000
WORTH OF ITEMS THIS MONTH, WHAT IS HIS SALARY FOR
THE MONTH?
 CHECKING FOR UNDERSTANDING

• 2. MARK MAKES PHP12,000 A MONTH PLUS SOME

MONEY BY COMMISSION RATES. HE GETS 8% OF
EVERYTHING HE SELLS. IF MARK SOLD PHP60,000
WORTH OF ITEMS THIS MONTH, WHAT IS HIS
SALARY FOR THE MONTH?
 CHECKING FOR UNDERSTANDING

• 3. JOHN RECEIVES PHP10,000 AS MONTHLY SALARY. AS AN AGENT,

HIS MONTHLY QUOTA IS PHP50,000 WORTH OF BEAUTY
PRODUCTS FOR WHICH HE GETS 5% COMMISSION ON ALL SALES
BEYOND HIS MONTHLY QUOTA. IF HE SOLD PHP75,000 WORTH OF
BEAUTY PRODUCTS THIS MONTH, WHAT IS HIS TOTAL SALARY FOR
THIS MONTH?
 CHECKING FOR UNDERSTANDING

• 4. A SALES AGENT RECEIVES PHP12,000 A MONTH

CORRESPONDING TO A SALES OF PHP30,000 WORTH OF GOODS.
FURTHERMORE, HE RECEIVES AN ADDITIONAL 6% COMMISSION
FOR ALL SALES BEYOND HIS MONTHLY QUOTA BUT NOT GREATER
THAN PHP50,000. AN ADDITIONAL 3% COMMISSION IS FOR SALES
BEYOND PHP50,000. IF HIS SALES IS PHP70,000 FOR THE MONTH,
HOW MUCH IS HIS SALARY FOR THE MONTH?
 CHECKING FOR UNDERSTANDING

• 5. A TUTOR AT ABC LEARNING CENTER RECEIVES A MONTHLY BASE

PAY OF PHP8,000 CORRESPONDING TO A PHP5,000 TUTORIAL FEE
INPUT TO THE CENTER. HE GETS A SHARE OF 15% OF ALL TUTORIAL
FEES BEYOND THE MANDATORY PHP15,000 INPUT. IF EACH
STUDENT HE HANDLES PAYS PHP6,000/MONTH ON TUTORIAL FEES
AND HE HAS FIVE STUDENTS FOR THE MONTH, HOW MUCH SHARE
DOES HE RECEIVE BEYOND HIS BASE PAY?
 CHECKING FOR UNDERSTANDING
• 6. A SALESPERSON GETS A COMMISSION FOR HIS SALES BASED
ON THE FOLLOWING SCALE:
6% ON ALL SALES
5% ON ALL SALES BETWEEN PHP50,000 AND PHP100,000
4% ON ALL SALES OVER PHP100,000
IF HIS TOTAL SALES WAS PHP150,000, WHAT IS HIS GROSS
PAY?
 CHECKING FOR UNDERSTANDING

• 7. A REAL-ESTATE AGENT RECEIVES A 3%

COMMISSION OF PHP300,000 FOR SELLING A
HOUSE. WHAT WAS THE PRICE OF THE HOUSE?
 CHECKING FOR UNDERSTANDING

• 8. AN APPLIANCE CENTER AGENT SOLD A SET OF

KITCHEN UTENSILS FOR PHP20,000 AND GOT A
PHP600 COMMISSION. WHAT WAS THE
COMMISSION RATE?
 CHECKING FOR UNDERSTANDING

• 9. MIGUEL EARNS A COMMISSION OF 10% WHICH

IS PHP10,000. HOW MUCH DID HE SELL?
 CHECKING FOR UNDERSTANDING

• 10. CARLO SOLD HIS HOUSE FOR PHP8,000,000. THE REAL-ESTATE

AGENT GOT A 5% COMMISSION FROM THE SALES. FROM HIS
COMMISSION, HE HAS TO PAY BIR TAX AND OTHER OBLIGATIONS
REQUIRED FOR THE TRANSFER OF OWNERSHIP OF THE PROPERTY
TO THE BUYER. THIS EXPENSE REPRESENTS 6% OF HIS TOTAL
COMMISSION. HOW MUCH NET AMOUNT WILL HE RECEIVE?