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Exploration 1 – Performance-Based Income

ESSENTIALS OF MATH 11

INCOME AND DEBT: Commission#1.1

EARNING AND SPENDING MONEY

Have you thought about your future? What career path will you take? Have you considered how employees in different occupations are paid? Most people think of an annual salary or an hourly wage, but there are many different ways to calculate someone’s income. Chapter 1 will introduce you to some of the other ways to do this.

GOALS

  • To calculate income when you are paid according to on-the-job performance

  • To calculate the total amount you pay for purchases made with a credit card, a personal loan, promotional offers, or foreign purchases

Exploration 1 – Performance-Based Income: COMMISSION

TERMS

  1. Commission = an amount is paid as income based on a percentage of sales

  1. Straight Commission = employee does not receive an hourly wage or salary – only a commission

  1. Graduated Commission = commission rate increases as sales increase

  1. Performance-Based Income = income based on the amount of work completed or goods and services sold

  1. Quota = a set amount; could be a set amount of sales or a set amount of items manufactured

Many people earn income based on their job performance. Performance can be measured in a variety of ways:

    • the number of items you make

    • the value of the products or services you sell

    • your ability to keep expenses within a certain budget or

    • your ability to sell more than an expected quota

Some employees’ income is base on commission. For people paid a commission, there is an incentive to sell as much as possible in order to earn the maximum amount of money. As a result, the company also benefits with greater sales. Sardis Secondary School sells coupons this way (actually graduated commission).

A person’s earnings can be based on straight commission, a salary plus commission, an hourly wage plus commission, or a graduated commission.

A: STRAIGHT COMMISSION:

  1. Myra is an insurance salesperson. She receives a 30% commission on the first year’s premium of each life insurance policy she sells. One week Myra sells 3 life insurance policies. If the premiums for the first year are $850, $400, and $340, what is Myra’s gross pay for this week?

 First we need to calculate Myra’s total sales:

$850.00 + $400.00 + $340.00 = $1590.00

 Now we need to multiply her total sales by her commission % expressed as a decimal:

$1590.00 x 0.30 = $477.00

Myra’s gross pay for the week is $470.00.

One formula for calculating STRAIGHT COMMISSION is:

# of items x price of each item x commission % (expressed as a decimal)

B: SALARY PLUS COMMISSION:

  1. Joe works for a farm equipment company that pays his a weekly salary of $350.00 and a commission of 6% on sales. One week he sells goods worth $5688.00. What is his gross pay?

  • Amount of commission: $5688.00 x 0.06 = $341.28

  • Joe’s gross pay: $350.00 + $341.28 = $691.28

One formula for calculating SALARY + COMMISSION is:

base salary + commission

C: GRADUATED COMMISSION:

  1. Craig is a produce broker. He earns 2% on the first $10,000 he sells, 4% on the next $10,000, and 6% on anything above $20,000. What would his gross pay be if he sold $40,000 of goods?

 Calculate the commission he earned on the first $10,000 sold:

$10,000 x 0.02 = $200.00

 Calculate the commission he earned on the next $10,000 sold:

$10,000 x 0.04 = $400.00

 Find the amount of commissionable earnings over $20,000 in sales:

$40,000 - $20,000 = $20,000

 Commission earned on the amount over the first $20,000:

$20,000 x 0.06 = $1,200.00

 Add the commission amounts to find Craig’s gross pay:

$200.00 + $400.00 + $1200.00 = $1800.00

COMPLETE THE NOTEBOOK ASSIGNMENT ON PAGES 18-20 # 1 – 10 Bonus 11

This assignment is due at the beginning of next class!