BUSINESS MATH

KEYWORDS NOTES

●​ NUMERATOR (top number) ●​ how many parts we have

●​ DENOMINATOR (bottom number) ●​ total number of equal parts

●​ Proper Fraction ●​ numerator < denominator ​

(e.g., ⅗)

●​ Improper Fraction ●​ numerator ≥ denominator ​

●​ Mixed Number ●​ a whole number and a proper fraction ​

(e.g., 2 ½ )

Addition/Subtraction 1.​ Make denominators the same (LCD – Least Common

Denominator)
2.​ Add or subtract numerators
3.​ Simplify if needed

EXAMPLE ⅓ + 2/6 = 2/6 + 2/6 =4/6 = ⅔

Multiplication Multiply straight across:

2/3 × 4/5 = 8/15

Division Flip the second fraction and multiply:

2/3 ÷ 4/5 = 2/3 × 5/4 = 10/12 = 5/6

DECIMALS A decimal is a way of expressing fractions using powers of 10.

●​ 0.5 = ½
●​ 0.25 = ¼

●​ Terminating ●​ ends after a few digits (e.g. 0.75)

●​ Repeating ●​ repeats a digit or group (e.g. 0.333…)

Converting Fractions to Decimals Divide the numerator by the denominator

●​ ¾ ​= 3÷4 =0.75

Converting Decimals to Fractions 1.​ Count decimal places

2.​ Put over 10, 100, etc.
3.​ Simplify
●​ 0.6= 6/10 ​= 3/5

PERCENTAGES A percentage is a ratio out of 100. The symbol is %

●​ 50% = 50 out of 100 = 0.5 = ½

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REMEMBER ●​ To convert a percent to a decimal → divide by 100 (move the

decimal 2 places left)
●​ To convert decimal to percent → multiply by 100 (move decimal 2
places right)
●​ Practice simplifying fractions!

RATIO A ratio compares two quantities. It tells how many times one value
contains or is contained within another.
●​ Fraction form: 3/4
●​ Colon form: 3:4
●​ Word form: 3 is to 4

PROPORTION A proportion is an equation showing that two ratios are equal.

●​ ⅔ = 4/6
●​ 2 x 6 = 3 = 412 = 12

Steps 1.​ Identify if it's direct, inverse, or partitive.

2.​ Write the known ratios.
3.​ Use the correct formula.
4.​ Cross-multiply or divide as needed.
5.​ Solve and simplify.

DIRECT ★​ Has two values that may vary but the ratio between them
remains the same
★​ An increase of one variable will also increase the other variable,
and a decrease in one will also decrease the other
★​ The relationship is DIRECTLY proportional
★​ In a direct proportion, two variables increase or decrease
simultaneously. This means their ratio stays constant.

INVERSE ★​ One quantity increase results in a decrease in another

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 BUSINESS MATH
★​ In an inverse proportion, as one variable increases, the other
decreases.
★​ The relationship is INVERSELY proportional
★​ Their product stays constant.

PARTITIVE ★​ When a whole is partitioned into equal or unequal ratios, such a

concept involves partitive proportions
★​ A partitive proportion happens when a whole amount is divided
into parts based on a given ratio. These parts can be equal or
unequal, depending on the ratio.

Cost Price (CP) The original price paid to purchase an item.

Selling Price (SP) The price at which the item is sold.​

Profit (Gain) Earned when SP is higher than CP.​

Formula:​
Profit = SP - CP​

Loss Happens when CP is higher than SP.​

Formula:​
Loss = CP - SP

Markup The amount added to CP to get the SP.​

Formula:​
Markup = SP - CP or SP = CP + Markup

Markdown/Discount Reduction from the original price.​

Formula:​
Discount = Original Price × Discount Rate​

●​ Profit Percentage ●​ (Profit ÷ CP) × 100

●​ Loss Percentage: ●​ (Loss ÷ CP) × 100

●​ Selling Price (with Profit %): ●​ SP = CP × (1 + Profit%)

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●​ Selling Price (with Loss %): ●​ SP = CP × (1 - Loss%)

●​ Discounted Price: ●​ Discounted Price = Original Price - Discount

If a product is bought at ₱500 and sold at ​

₱650, what is the profit and profit Solution:​
percentage? Profit = ₱650 - ₱500 = ₱150​
Profit % = (₱150 ÷ ₱500) × 100 = 30%

A store marks up a jacket worth ₱800 by SP = ₱800 × (1 + 0.25) = ₱800 × 1.25 = ₱1,000
25%. What is the selling price?​
Solution:​

A customer gets a 10% discount on a Discount = ₱1,200 × 0.10 = ₱120​

₱1,200 item. What is the amount saved Final Price = ₱1,200 - ₱120 = ₱1,080
and the final price?​
Solution:

Buying Getting goods or services in exchange for money.

Selling Giving goods or services in exchange for money​

Cost Price The amount a seller pays to get or produce an item.​

Selling Price The amount a customer pays for an item.​

Profit The money earned after selling an item more than its cost

Loss When an item is sold for less than its cost.​

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Fixed Cost (FC) Cost of expenses that does NOT VARY over time on a certain relevant
range

Variable Cost (VC) This cost VARIES depending on the number of units of goods produced

Total Cost This cost is the sum of the fixed cost and variable cost
TC=FC+VCx

Break Even Analysis ●​ Simplest quantitative model (Tool)

●​ Used by a decision maker
●​ Which is also referred to as a cost-volume analysis

Break Event Point Is the value of sales for which total sales equals total cost where profit is
equal to zero

Volume The level of production

A. Converting Fraction to Decimal and Step 1: Change the fraction to decimal by simply performing division
Percent Forms (Fraction
to Decimal)
Step 2: Move the decimal point two places to the right
Step 3: Affix the percent sign (Decimal to Percent)

B. Converting Decimal to Fraction Forms Step 1: Move the decimal point two places to the right
Step 2: Place a denominator of the resulting number in multiples of 10
(that is
10, 100, 1000 etc.)
Step 3: Reduce the fraction to lowest term

C. Converting Percent to Decimal Step 1: Remove the percent sign

Step 2: Move the decimal point two places to the left

D. Converting Percent to Fraction Step 1: Remove the percent sign

Step 2: Place a denominator of the resulting number in multiples of 10
(that is
10, 100, 1000 etc.)
Step 3: Reduce the fraction to lowest term (Decimal to Fraction)
The following are some examples in converting fractions to decimal,
fractions
to percent, decimal to fraction, or percent to fraction.

PROPORTION

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The first and fourth terms, a and d are the extreme terms or extremes,
while the
second and third terms b and c are the middle terms or means.

Direct Proportion Two variables (x and y) vary such that as x increases, y also increases, or
as x decreases, y also decreases proportionally. Or that is, the ratio x/y Is
always the same. The same holds true with the ratio y/x.

Example: Two pots of cactus cost Php 130.00. How much do 5 pots of
cactus
cost? What type of proportion is this?
In this situation, we have two variables: x (number of pots) and y (cost
of pot). By analyzing, we can say that the more pots, the higher the
cost. That is, both quantities are increasing. Therefore, this is an
example of direct proportion.

Indirect/Inverse Proportion Two variables (x and y) vary such that as x increases, y decreases, or as x
decreases, y increases proportionally. Or that is, the product of x and y
is always the same.

Example: Two men can finish planting rice in a hectare of rice field for
four days. At the same rate, many days will it take for 8 men to do the
job? What type of proportion is this?
In this problem, we have two variables x (number of workers/men) and
y (days) to finish planting rice). And we can infer that the greater
number of workers, the lesser number of days to finish the job. That is,
as one quantity increases, the other quantity decreases. Therefore, this
is an example of indirect/inverse
proportion.

Partitive Proportion In this type of proportion, a whole is divided into parts.

Example: A cash incentive worth Php 30,000.00 is to be divided by 3

families
With the ratio 1: 3: 4, how much does each family receives? What type
of
proportion is this?
This situation shows division of whole into parts or portions. Therefore,
this is an example of partitive proportion.

Direct Proportion Two variables ( x and y ) vary such that as x increases, also y increases, or
as y decreases, also x decreases proportionally. Or that is, the ratio x/y is
always the same. The same holds true with the ratio y/x

Indirect/Inverse Proportion Two variables ( x and y ) vary such that as x increases, y decreases, or as
y decreases, x increases proportionally. Or that is, the product of and is
always the same.

Partitive Proportion In this type of proportion, a whole is divided into parts.

PRICING Setting prices is another application of our knowledge on percentage.

Trading or
merchandising firms and manufacturing firms make use of of pricing
decisions. Trading or merchandising firms are those who do “buy and
sell”. It means they sell
what they buy. Manufacturing firms are those who buy raw materials,
process them

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and sell finished products. Setting the right price is important for
goods to sell. If the price is too high, the
customers may not be able to afford it; if it is too low, the company may
not be able to
make a profit. Aside from the cost of the product, operating expenses
should be
considered for the company to earn a profit. To be able to set the
correct selling price of your product, you have to understand
the following terms: cost price, operarting cost, selling price, profit,
mark-up, mark-on
and markdown.

COST PRICE This refers to the purchase price of a product that a company or store is
going to
sell. For example, if a store owner bought a T-shirt for PhP150 this is the
cost price of
the product as far as the store owner is concerned. It is also the price
that has to be spent to produce goods or service before any profit
is added. This is usually computed on per unit basis. In our previous
activity, the cost price refers to the price of raw materials needed to
produce a Camote cue. For instance, if the total cost of the raw
materials is PhP400
which will produce 50 sticks of Camote cue, divide the total cost with
the number of
sticks to be sold. Then, the cost price of each stick is PhP8.

OPERATING COST This refers to the price (per unit) incurred relative to the production and
sale of commodity. This includes other expenses like rent, staff salaries,
travel expenses and other incidental expenses. Operating cost can also
be set as a percentage of the cost price. For example, the operating
cost for a T-shirt purchased from divisoria at PhP200can be set at 25%
of the cost price. In this case, the operating cost is PhP50 (multiply rate
of operating cost 0.25 with cost price 200). To understand the concept
of Mark-on, mark-up and mark down, let us first define these important
terms used in business. 6 In our previous activity, the operating cost
refers to the other expenses incurred to
produce Camote cue. For Instance, if the total operating expenses in
producing 50 sticks of Camote cue is PhP150, then the operating
expense per stick is PhP3 (divide total cost by number of sticks
produced).

SELLING PRICE This refers to the price at which the product or item is sold per unit. The
selling price is obtained using the given formula below.

SELLING PRICE = COST PRICE + OPERATING EXPENSES + PROFIT

S=C+E+P
Where S = Selling Price
C = Cost Price
E = Operating Expenses
P = Profit

PROFIT It is the money earned after the cost price and operating expenses are
accounted for after the sale of a commodity. In our previous activity, we
assumed that the estimated cost of raw materials is PhP400 and the
other expenses is estimated to be PhP 150. From the raw materials,
bought we estimated that 50 Camote cue sticks will be sold. With that,
cost price is divided by 50 to obtain the cost per stick of camote cue.

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That is PhP 8 per stick. The operating cost per unit is also obtained by
dividing the estimated total expenses by 50. Then the operating cost
per stick of camote cue is PhP3. If we set our profit to be 25% of the cost
price per stick, we obtain the amount of profit by multiplying .25 with 8
that is PhP2 per stick. We can now obtain the selling price of the
camote cue using the given formula.
S=C+E+P
S=8+3+2
S = 13

MARK UP This refers the amount added to the cost price to determine the selling
price. It is also defined as the difference between the selling price and
the cost price and sometimes refered to as GROSS PROFIT. It can also
be expressed as a percentage above the cost. For example, a T-shirt
bought at PhP150 is sold at PhP200, the difference which is PhP50 is
the mark-up of the T-shirt. In our previous activity, the mark-up is PhP5
because the cost of each Camote cue is PhP8 but sold at PhP13 each.
Mark-up value is usually computed based on cost. Mark-up in percent
or mark-up rate on the other hand can be computed based on either
cost price or selling price.

It is the amount added to the cost price to determine the selling price.
It is also defined as the difference between the selling price and the
cost price and sometimes refered to as GROSS PROFIT. . To compute
Mark-up: MARK UP = SELLING PRICE – COST PRICE

MU = S – C
Where MU = Mark-up
S = Selling Price
C = Cost Price

MARK ON This refers to the additional increase in the price of the product or item
most common during various seasons or holidays like two weeks
before Cristmas due to the increase of demand. Mark-on is usually
computed based on selling price. For example during the food sale, you
realized that there is a high demand for your Camote cue and you want
to take advantage of this peak season, thus you decide to increase the
price from PhP13 to PhP15. The additional increase on the price is called
mark-on. The other reasons why mark-on becomes an option for the
business owner are the following:
1. A calamity has hit the source of raw material or commodity therefore
affecting its supply. ( price of alcohol increased due to pandemic)
2. Seasonal Demands. ( Christmas, Valentine’s , etc.)
3. Special occassions is being celebrated. (commemorative items like
t-shirts, etc.)

It is the difference between the Peak Selling Price and the Regular
Selling Price.
To compute Mark – On:
MARK-ON = PEAK SELLING PRICE – REGULAR SELLING PRICE
MO = PS – S

where MO = mark-on
PS = Peak Selling Price
S = Regular Selling Price

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MARK DOWN This refers to reduction in the selling price of an item to stimulate its
demand or to drive a competitor out of the market. Sometimes,
markdowns are created to remove a slow-selling item from the
inventtory. The rate of mark-down is always computed based on selling
price. The other reasons why mark-downs are sometimes thought of as
an option for a business owner are the following:

1. The item is a perishable item and it is best to dispose of it sooner that

simply throw it away. (cooked food, fruits, vegetables, etc.)
2. The item has become dirty or worn out, or possibly out of style.
3. Competition forces the marking down of an item.

After considering that the sale of your Camote cue is coming low, you
may need to sell it at a DISCOUNTED PRICE or what is commonly
known as SALE PRICE. You may decide to sell you Camote cue at a
discounted price of PhP11 which covers the cost price and the
operating expense but zero or no profit. The price which give a zero
profit is also called the BREAK-EVEN PRICE. You may also decide to
simply sell it at PhP8 each to only cover the cost price. With this, price,
you will have a negative profit which is said to be LOSS.

It is the difference between the Selling price and the Sale Price

To compute for Mark-down:

MARK-DOWN = SELLING PRICE – SALE PRICE

MD = S – SP

where MD = Mark-down
S = Regular Selling Price
SP = Sale Price

REVENUE This refers to the income earned after products or services are sold.
Revenue reflects to all the money earned from the sales before any
deductions have been made. Revenue is usually the top line in an
income statement.

COST OF GOODS SOLD (COGS) This refers to all the expenses that the business incurs while making
the products and delivering services. During the calculation of cost of
goods sold, only variable costs are considered. Variable costs are those
that are directly incurred in the production of goods and those that
may vary depending on the amount of goods being produced.
Examples of variable costs that are calculated as part of COGS include
the cost of raw materials, manufacturing costs, product packaging,
direct labor, Across: 1. Amount added to the cost of goods 4. A
reduction in price Down: 2. Income generated from normal business
operations. 3. Cost – Selling Price 5. Revenue – Expenses Discover 3
freight, and any other costs that can be directly attributed to making
and selling the product. Fixed costs are not considered part of the cost
of goods sold. Examples of fixed costs include rent, office expenses, and
salaries of staff.

GROSS PROFIT This is the part of the revenue that remains after the expenses of
manufacturing your products or delivering your products have been
deducted. Gross profit is the difference between revenue and COGS.

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MARGIN The margin, also referred to as gross margin, is a figure that shows the
amount of revenue earned after the COGS has been deducted. Margin
can be expressed in Peso value or as a percentage. Margin is calculated
by dividing the gross profit by the revenue.

GROSS MARGIN The gross margin is a very important metric when evaluating the
financial performance of a company because it tells whether the
company is making or losing money on sales, which is a very crucial
aspect of business, since a business that is not making money on sales
is failing. In addition, the gross margin is a useful indicator of how
efficient the management of the company is in using supplies and
labor in the production process. For a company that has a very low
gross margin, there are two major approaches for improving this key
metric. The first one is by increasing the price of the products or
services, while the second is by reducing the cost of production. None
of these two approaches is easy. A price increase in a bid to increase
profit margin can result in a reduction in sales. If the sales become too
few, the business might be unable to bring enough revenue to cover
operating costs. Therefore, before increasing the price, the business
needs to consider factors such as supply and demand for the product,
competition from the other businesses, inflation rates and so on. The
second option for companies that want to increase their gross margin
is to reduce the variable costs associated with producing their product.
For this to happen, the company needs to either reduce the cost of
acquiring materials or make the production process more efficient. A
great way of cutting costs on materials is to take advantage of volume
discounts. By buying more material from a supplier at a go, you are
more likely to receive discounts. Alternatively, you might opt to look for
a less costly supplier. You should be careful when doing this since low
prices on materials might mean lower quality materials. If you decide to
reduce your production cost by making your production process more
efficient, you should also take care to ensure that the quality of goods is
not compromised.

DIFFERENCES IN MARGIN AND MARK As you might have realized by now, margin and markup are like two
UP sides of the coin. They describe the same thing, but they provide
different perspectives. The margin shows the relationship between
gross profit and revenue, while markup shows the relationship
between profit and the cost of goods sold.

Aside from showing different perspectives, there are some other key
differences between margin and markup, which include:
●​ Having a markup on your products ensures that your business
is making a profit with each sale and provides a way of
quantifying that profit.
●​ Markup is a great tool in the initial stages of a business since it
helps you to better understand how cash flows into and out of
your business. This can be very useful in helping you locate
efficient points and bottlenecks within your business.
●​ Margin, on the other hand, is a precise and reliable tool for
calculating profits and provides a clear picture of how sales are
impacting your company’s bottom line.
The difference between margin and markup is that the margin is sales
minus the cost of the goods sold, while markup is the amount by
which the cost of a product is increased in order to derive the selling
price. A mistake in the use of these terms 6 Here’s an enrichment
activity for you to work on to master and strengthen the basic concepts
you have learned from this lesson. can lead to price setting that is

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substantially too high or low, resulting in lost sales or lost profits,
respectively. There can also be an inadvertent impact on market share,
since excessively high or low prices may be well outside of the prices
charged by competitors.

MARGIN VS MARKUP—WHICH SHOULD Generally, most small businesses, and especially retailers, depend on
BE USED? markup to set prices for their products. However, when it comes to
recording financial information about a business, an accountant,
bookkeeper or accounting software will be more interested in the
margin rather than the markup. If you use markup in the place of
margin, you will end up with bungled accounting numbers, which
might make you think that your business is making more money than
it is actually making. Therefore, while both can be used to determine
how to price your products, you should stick to the gross margin when
it comes to accounting, because it is a more accurate representation of
the profit your business is making.

Gross margin is a company’s net sales revenue minus its COGS. In other words, it is
the sales revenue a company retains after incurring the direct costs
associated with producing the goods it sells, and the services it
provides. The higher the gross margin, the more capital a company
retains on each peso of sales, which can then be used to pay other
costs or to satisfy debt obligations. The net sales figure is simply gross
revenue less the returns, allowances and discounts.

The formula for Gross Margin is: Gross Margin = Net Sales – COGS Where COGS = Cost of goods sold

The formula for Gross Profit Margin is: Gross Profit Margin = (Net Sales – COGS)/Total Revenue
or = Gross Margin/Total Revenue

How to calculate Gross Margin To illustrate an example of a gross margin calculation, imagine that a
business collects 10 million pesos in sales revenue. Let us assume that
the cost of goods consists of 1 million pesos spent on manufacturing
supplies, plus 4 million pesos spent on labor costs. Therefore, after
subtracting its COGS (10 million – (1 million + 4 million)), the company
boasts a 5 million gross margin.

Examples of Gross Margin Calculations 1. If a retailer had net sales of Php200,000 and its cost of goods sold was
used in sales. Php120,000, the retailer had a gross margin of Php80,000 or 40% of net
sales (80,000/200,000).

2. A company earned Php550,000 in revenue by selling shoes, and the

shoes created Php220,000 of labor and materials costs to produce. To
calculate gross profit, the company subtracts cost of goods sold from
revenue: Php550,000 – Php220,000 = Php330,000. To get the gross
profit margin, divide gross profit by revenue: Php330,000/Php550,000 =
0.6 or 60%. This means that the direct costs of producing the product
that the company sells consume 40% of its revenue, and that it has
60% of its revenue to cover indirect costs and create profit for the
owners.

What does the Gross Margin Tell you? The gross margin represents the portion of each peso of the revenue
that the company retains as gross profit. For example, if a company’s
recent quarterly gross margin is 35%, that means it retains .35 pesos
from each dollar of revenue generated. Because COGS have already
been taken into account, those remaining funds may consequently be

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channeled toward paying debts, general and administrative expenses,
interest fees, and dividend distributors to shareholders. Companies use
gross margin to measure how their production cost relate to their
revenues. For example, if a company’s gross margin is falling, it may
strive to slash labor costs or source cheaper suppliers of materials.
Alternatively, it may decide to increase prices, as a revenue increasing
measure. Gross profit margins can also be used to measure company
efficiency or to compare two companies of different market
capitalizations.

Why Does Gross Margin Matter? Gross margin is generally important because it is the starting point
toward achieving a healthy net profit. When you have a high gross
profit margin, you are in better position to have a strong operating
profit margin and strong net income. For a newer business, the higher
your gross profit margin, the faster you reach the break-even point and
begin earning profits from basic business activities. This does not
always mean a high margin is possible however. The pricing strategy
and competition will ultimately drive how the margin reacts to the
consumer buying habits. Nobody wants to capture the highest
possible margin without sacrificing sales to maximize revenue.

Margin-Based Pricing Strategies The gross margins are often determined by pricing strategies. Typically,
the way a product is priced is based on competitive market pricing. In
other words, you will 6 Here’s an enrichment activity for you to work on
to master and strengthen the basic concepts you have learned from
this lesson. price similar to the competition and you’ll accept the
standard margins while also attempting to market your product so
that you drive sales. In some instances, it pays to lower price than the
market while also accepting a lower gross margin. The decreased
margin can lead to increased sales as you offer the best price point. It
can also backfire as competitors reduce prices, and everyone
experiences a lower margin against similar sales trends. Another
strategy being used in the market is that of pricing higher than the
market to maximize the margins. A high pricing strategy is often
accompanied by a major branding campaign. In this case, the
company is really selling the brand as much as the product so that it
can achieve sales at the higher pricing. This strategy can work in some
markets, but it does come with the initial risk of selling to a market
that’s comfortable buying at a lower price.

trade discount A trade discount is the amount by which a manufacturer reduces the
retail price of a product when it sells to a reseller, rather than to the end
customer. The reseller then charges the full retail price to its customers
in order to earn a profit on the difference between the amount by
which the manufacturer sold the product and the price at which it sells
the product to the final customer.

single trade discounts 1. When you go to the market and buy meat from a regular vendor or
“suki” (as we say in Filipino), you are sometimes given an incentive or
loyalty discount.

2. When you buy an item which a vendor is willing to give out on

installment, you may be able to convince him/her to give you a cash
discount if you are willing to pay the full amount in cash.

3. During Christmas season and you shop for gifts for your friends and
family, we convince sellers to give us a discount if we buy a stated
minimum number of items. This is called a volume discount.

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To compute for the TRADE DISCOUNT: TRADE DISCOUNT = TRADE DISCOUNT RATE X SELLING PRICE

Profit and loss The ultimate goal of any businessman is to earn a profit. To determine
whether profit or loss, all expenses are considered minus items and are
therefore deducted from the revenue. The result is a profit if it is
positive and a loss if it is negative.

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Commission is a fee paid to person who makes a sale. The commission is usually a
percent of the selling price. The percent is called the Commission Rate

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Straight Commission It is a type of commission where a person is paid a percentage of
his/her sales only. Let us take a look at this example:

Example:
Karyl works on a “commission only” basis and receives 3% on her
monthly sales without a base salary. What is her commission and total
pay during a month when she sells ₱108,000 worth of appliance,
compute for the commission.

Solution: The commission will be 3% of ₱108,000.

And that is, ₱108,000(0.03) = ₱3,240

Salary plus Commission It is a type of commission where a person gets paid a salary and a
percentage of his/her sales. Let us take a look at this example:

Example:
Mr. Cueva decides to work for ABX Company that will pay him ₱3,500
per week and 6% of any sales above ₱3,000. If he sold goods worth
₱5,000, what is his gross pay?

Solution: ₱5,000 – ₱3,000 = ₱2,000

His commission will be 6% of ₱2,000 and that is: (₱2,000)(0.06)

Commission = ₱120
His gross pay is computed as ₱3,500 + ₱120 = ₱3,620

Graduated Commission It is a type of commission where the percentage changes based on

how much someone sells. Most of the companies encourage their
agents to sell more goods. Let us take a look at this example:

Example:
Mary has a monthly commission plan where she receives 2.5% on the
first ₱100,000 of sales during the month and 3.5% on the sales above
₱100,000. If her total sales during the month is ₱150,000, compute her
commission.
Solution: 150,000 – 100,000 = ₱50,000

Commission on Installment Basis All computations of commission above are on cash sales. If the sales are
on installment basis, they are giving commissions based on the
payment made by the buyers. Let’s take a look at this example:

Example:
A salesman, earning 4% commission made a sale of ₱100,000 to be
paid in 5 equal monthly installments. How much will be his monthly
commission?

Solution: ₱100,000 ÷ 5 = ₱20,000

4% of 20, 000 is ₱800.00
Therefore the salesman’s monthly commission is ₱800.00

What is down payment? A down payment is a type of payment made in cash during the onset
of the purchase of an expensive good or service. The payment
represents a percentage of the full purchase price.

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 BUSINESS MATH
What is gross balance? A down payment is a type of payment made in cash during the onset
of the purchase of an expensive good or service. The payment
represents a percentage of the full purchase price.

What is Current Increased Balance? A down payment is a type of payment made in cash during the onset
of the purchase of an expensive good or service. The payment
represents a percentage of the full purchase price.

Total revenue refers to the total sales based on the total number of units of
outputs produced and sold. This may also refer to gross sales because it
is located at the first line of the income statement proper, labeled as
Sales.

Expenses, on the other hand, are costs spent to make the revenue. Expenses may
refer to variable cost and fixed cost.

Variable cost (V) is the amount of expenses that is directly proportional to

the number of units produced and sold (x). As the number of units
increases, so does the variable cost. Examples of variable costs are raw
materials, sales commissions, delivery fee or shipping fee,
advertisements, and the like. Compute variable costs in Ben Dilan
Photoshop.

Fixed cost (FC), on the other hand, is the amount of expenses that do not
change regardless of the increase or decrease in the number of units
produced and
sold. Examples of fixed costs are rent for office space, weekly payroll,
amortization, and the like. Unlike Variable cost, there’s no further
computation for fixed cost. For

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 BUSINESS MATH
instance, the monthly rent for office space in Ben Dilan Photoshop is
₱8,001, this is
already the fixed amount that the owner pays every month.

So, total cost is the sum of total variable cost and the total fixed cost

If the total revenue is greater than the total costs, then there is a profit.
And if the total revenue is less than the total costs, you lose. In Ben
Dilan Photoshop, its total sales is greater than the total cost so it has
operating profit of 126,999.00 (this profit is obtained by subtracting the
total cost from the total revenue). Profit may be calculated by
subtracting the total costs from the total revenue.

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 BUSINESS MATH

Gross Earning is the total amount earned by any person

before deductions are made. It is also known as the gross income.

Deductions are fixed amount or a percentage of the basic

salary held by any authority as a form of necessary dues.

Net Earnings may be defined as the amount earned by any person from the gross
earnings less the total deductions. It is also known as the net income,
net pay or take-home pay.

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 BUSINESS MATH

Mortgages Mortgage loan is when a financial institution uses the home as

collateral for a loan. A down payment is usually expected for most
installment purchases. This typically amounts to several percent of the
purchase price. A mortgage loan is a long-term loan. Usually, a
borrower will choose a loan term between 5 and 30 years. Many
institutions offer a 50-year term loan, but the longer it takes to pay off a
mortgage, the higher the interest rate. A property mortgage requires
payment of the purchase price for the property at the most basic level,
and interest on the loan. The down payment is usually some fraction of
the property's purchase price. It is usually called the equity of the buyer.
Suppose you want to buy a secondhand car worth P310,000 and the
seller wants a down payment of 20 percent.

FIXED RATE MORTAGAGES Fixed-rate mortgages provide lenders with a fixed interest rate for a
defined period of usually 15, 20, or 30 years. For a fixed interest rate, the
shorter the period in which the creditor charges, the higher the
monthly charge. Conversely, the longer it takes the borrower to pay, the
smaller the monthly amount of repayment. However, the longer it
takes for the credit to be repaid, the more the borrower ultimately pays
in interest charges. The biggest advantage of a fixed-rate mortgage is
that the homeowner can count on their monthly mortgage payments
being the same every month over their mortgage life, making it easier
to set household expenses and avoid any unnecessary extra costs from
one month to the next. However, if market prices grow sharply, the
borrower will not have to make higher monthly payments.

ADJUSTABLE MORTAGAGES Adjustable mortgages (ARMs) come with interest rates that can
change over

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 BUSINESS MATH
the life of the loan, and usually do so. Market rate increases and other
factors
cause interest rates to fluctuate, which changes the amount of interest
the
borrower has to pay, and thus changes the total monthly payment due.
The
interest rate is to be assessed and adjusted once a year or once every
six months
for adjustable mortgages.

Term of the Loan: Total Number of The billing of the loan in installments is called amortization. The
Payments schedule prepared which shows the interest payments for the
payment duration (called the loan term) is called the amortization
table. Suppose you have to make one payment per month for 5 years in
our example in Module 2. The loan term is five years. Five years
multiplied by 12 months per year will give you 60, meaning you have to
make 60 monthly payments to be able to fully pay your loan.

monthly payments

Amortization Table Although the monthly payment is constant, the amount of money
charged to interest and principal varies on a monthly basis. For the first
payment, we multiply the principal balance of P248,000 by the
monthly interest rate of 0.00416 to get P1,031.68 to determine what
portion of P4,679.17 goes to interest. Therefore, deducting P1, 031.68
from P4,679.17 payment, it will result in P3,647.49. Deducting the
P3,647.49 from P248,000, the new balance of the mortgage loan will
now be P244,352.51. If we continue this process, we can have an
amortization table created. The use of the Internet calculator for the
amortization plan is typically resorted to. The following amortization
plan refers to our example as set out in the [Link]
website:

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 BUSINESS MATH

Consumer Loan is given to retail customers or individuals for personal purposes.

Business Loan is lent to companies or business enterprises to finance their business

operating costs like corporate loan, commercial loan, small and
medium enterprise loan, among others.

Interest is the fee or rent that lenders charge to borrowers for the temporary
use of the borrowed money.

Simple Interest is calculated only on the original principal amount and is paid at the
end of the loan period.

Principal amount borrowed

Rate of Interest the percentage of the principal that will be charged for a specified
period of time.

P – amount of the loan/investment

r – annual rate of simple interest
t – time period of the loan/investment (e.g., daily, weekly, monthly,
yearly, etc.)
I – amount of interest paid or received
F – maturity value of the loan or investment

Abbreviations: ●​ F = Future Value

●​ P = Present Value

●​ I=P⋅r⋅tI = P \cdot r \cdot tI=P⋅r⋅t

●​ P=Ir⋅tP = \frac{I}{r \cdot t}P=r⋅tI​
●​ F=P+IF = P + IF=P+I
●​ F=P(1+r⋅t)F = P(1 + r \cdot t)F=P(1+r⋅t)

Two ways in determining Time Period:

●​ Approximate Time – uses 30 days in every month​

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●​ Actual Time – uses the exact number of days in every specific
month​

Exact Interest
is computed using 365 days in a year as the time factor denominator.

●​ Time = Number of days of a loan ÷ 365

Ordinary Interest
is a type of interest wherein the number of days is computed based on
360 days in a year.

●​ Time = Number of days of a loan ÷ 360

Compound Interest Formula:

P – principal​

r – rate​

t – longest time (year)​

n – number of times compounding occurs in a year

TOTAL REVENUE FUNCTION Rx=SP(units)

TOTAL COST FUNCTION Cx=FC+VCx

PROFIT ACTION P=Rx-Cx

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