BUSINESS MATHEMATICS

CHAPTER 3
BUYING AND SELLING

MODULE LESSONS AND COVERAGE

In this module, you will examine the question when you take the following lessons:
LESSON 1: PRICING
LESSON 2: TRADE DISCOUNTS AND CASH DISCOUNTS

In these lessons, you will learn the following:

Lesson 1 Pricing
• define cost, initial markup or mark-on, additional mark up, markup cancellation,
and markdown.
• Compute for mark up based on cost and selling price
• Convert markup based on cost to markup based on selling price and vice versa.
Lesson 2 Trade Discounts and Cash Discounts
• Compute for the net invoice price (NIP) using a single trade discount and series
discount.
• Compute for deadline for discount period and credit term.
• Compute for cash discounts and net amount payable.
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LESSON 1 – Pricing
At the end of this lesson, you will be able to:
1. define cost, initial markup or mark-on, additional mark up, markup cancellation, and
markdown;
2. Compute for mark up based on cost and selling price; and
3. Convert markup based on cost to markup based on selling price and vice versa.

Let’s start:
Cost refers to the purchase price of an article.
Initial markup or mark-on refers to the amount added to cost to arrive at the original selling price.
Cost P100
Plus: Initial Markup or mark-on 20
Original Selling Price P120
Additional Markup refers to the amounts added to original selling price to arrive at a new selling price.
Original selling Price (refer to the example above) P120
Plus: Additional Markup 30
New Selling Price P150
Markup cancellation refers to the decrease in the new selling price that does not decrease it below the original
selling price.
New selling Price (refer to the example above) P150
Less: Markup cancellation 10
Reduced selling Price P140
Less: Markup cancellation 20
Original Selling Price P120
Markdown refers to reduction in the original selling price.
Original Selling Price (refer to the example above) P120
Less: Markdown 5
New reduced selling Price P115
Less: Markdown 5
New reduced selling price P110
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Markup Based on Cost refers to cost taken as 100% and serve as the base.
Markup Based on Selling Price refers to selling price taken as 100% and serve as the base.
Amount MUc Rate MUsp Rate
Selling Price P450 150% 100%
Cost 300 100% 66.67%
Markup P150 50% 33.33%

To get the corresponding percent for markup based on cost and markup based on selling price.

𝑀𝑎𝑟𝑘𝑢𝑝
𝑀𝑎𝑟𝑘𝑢𝑝 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 =
𝐶𝑜𝑠𝑡

150
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 =
300

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 = .5 𝑥 100

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 = 50%

𝑀𝑎𝑟𝑘𝑢𝑝
𝑀𝑎𝑟𝑘𝑢𝑝 𝑎𝑠 % 𝑜𝑓 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒

150
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑎𝑠 % 𝑜𝑓 cos 𝑡=
450

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 = .3333 𝑥 100

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 = 33.33%

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Converting Markup Based on Cost to Markup Based on Selling Price and Vice Versa
MUc Rate MUsp Rate
Selling Price 150% 100%
Cost 100% 66.67%
Markup 50% 33.33%

𝑀𝑈𝑐 50% 1
𝑀𝑈𝑠𝑝 = = = = 33.33%
𝑆𝑃 𝑅𝑎𝑡𝑒 150% 3

𝑀𝑈𝑠𝑝 33.33% 1
𝑀𝑈𝑐 = = = = 50%
𝐶𝑜𝑠𝑡 𝑅𝑎𝑡𝑒 66.67% 2

Markdown
Markdown = Old Selling Price – New Selling Price
Amount MD Rate
Old Selling Price P450 112.5%
New reduced selling Price 400 100%
Markdown P50 12.5%

𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛 50 1
𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛 𝑎𝑠 % 𝑜𝑓 𝑐𝑜𝑠𝑡 = = = = .125 = 12.5%
𝑁𝑒𝑤 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 400 8
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LESSON 2 – Trade Discounts and Cash Discounts

At the end of this lesson, you will be able to:
1. Compute for the net invoice price (NIP) using a single trade discount and series discount.
2. Compute for deadline for discount period and credit term.
3. Compute for cash discounts and net amount payable.

Let’s start:

Trade Discount is a reduction from list price granted to buyers. It could take the form of volume discounts
for large purchases, dealer’s or distributor’s discounts, or special discounts granted at the discretion of the
seller.

Single Discount

Discount = List Price x Discount Rate

Example: Compute the discount for an item with a list price of P1,250.00 subject to a 15% discount. What is
its net invoice price?

Given: List Price = P1,250.00

Discount Rate = 15%

Find: a. Discount
b. Net Invoice Price

Solution: a. Discount = List Price x Discount Rate

= P1,250.00 x 15%
= P187.50

b. Net Invoice Price = List Price – Discount

=P1,250.00 – P187.50
= P1,062.50

Alternative solution for Net Invoice Price

Net Invoice Price (NIP) rate = 100% - Discount Rate
NIP rate = 100% - 15%
= 85%

Net Invoice Price = List Price x NIP rate

= P1,250.00 x 85%
= P1062.50
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Series Discount

Example: Compute for the discount and the net invoice price if an item listed at P1,250.00 is given a 10%
and 5% discount.

Given: List Price = P1,250.00

Discount Rate = 10% and 5%

Find: a. Discount
b. Net Invoice Price

Solution:
Method 1
List Price P1,250.00
Less: 10% (P1,250 x 10%) 125.00
Difference P1,125.00
Less: 5% (P1,125 x 5%) 56.25
Net Invoice Price P1,068.75
Our total discount is equal to the first discount plus the second discount:
Total discount = P125.00 + P56.25
= P181.25

Method 2

1.) Deduct the first discount rate from 100% and multiply the list price by the rate obtained:

100% - 10% = 90%

Multiply the list price by the first balance rate obtained in step (1)
List Price P1,250
Multiply by 90%
First Balance P1,125

2.) Deduct the second discount rate from 100% and multiply the first balance obtained in (1) by the
second balance rate obtained.

100% - 5% = 95%

Multiply the first balance by the second balance rate obtained in step (2)
List Price P1,125.00
Multiply by 95%
Net Invoice Price P1,068.75
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Method 3

Using this method, we will convert series discounts to a single equivalent rate.
Step 1: Deduct the series discounts individually from 100%
a. 100% - 10% = 90%
b. 100% - 5% = 95%

Step 2: Multiply the resulting products by themselves to give us the net invoice price rate.

(a) x (b) = 90% x 95% = 85.5% (NIP Rate)

Step 3: Deduct this NIP rate from 100% to get the single equivalent discount rate
100% - 85.5% = 14.5 (Single equivalent rate)

Discount = List Price x Single equivalent rate

= P1,125.00 x 14.5%
= P181.25

Net Invoice Price = List Price x NIP Rate

= P1,125.00 x 85.5%
= P1,068.75

Cash Discount is the sales discount granted by the seller to the buyer.

The rate of cash discount is shown under the terms of payment granted by the seller to the buyer.

These terms of sale/purchase are expressed as 2/10, n/30; 2/10, 1/15, n/60; n/eom.

Computing Discount Period and Credit Period

To compute for the deadlines for the discount and the credit periods, let us study the following examples:

a. Date of Invoice: March 2 Term: 2/10, n/30

To solve for the deadline for the discount period, we count 10 days from March 2; hence, we get
March 12

Date of invoice March 2

Discount Period 10 days
Deadline for the discounted period March 12
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Computing for Cash Discounts

To compute for cash discounts, we simply multiply the net invoice price by the discount rate.

a. Net Invoice Price: P3,060.00

Invoice Date: March 2
Term: 2/10 = n/30
Date of Payment: March 12
Find: 1) Cash Discount
2) Net amount due

Solutions:

Cash discount = NIP x Cash Discount Rate

= P3,060 x 2%
= P61.20

Net amount due = NIP – Cash Discount

= P3,060 – P61.20
= P2,998.80
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LESSON 3 – Commission and Overrides

At the end of this lesson, you will be able to:
1. Differentiate commission from override
2. Compute for commission earned on a particular cash sale
3. Compute for commission earned on an installment sale;
4. Solve for gross earnings involving salary, commission, and override.

Let’s start:

Commission is generally paid to the salesman, agents, and broker as their incentives for increasing the firm’s
sales.

Plain Commission
Most sales agents earn commission only. They are not paid any salary. Therefore, they exert their effort to
increase their sales because the more they sell, the more they earn.

Example:
a. Carmen Yambao is a sales agent for the High Ace Realty. She is paid based on commission only. She
is given a 2% commission on her sales. For the current month, her sales was P1,035,000.00. Her
commission would be:

Commission = P1,035,000 x 2%
= P20,700

b. Jed Montenegro is a car sales agent. He is paid commission only at the rate of 2.5%. for the current
month, he sold two cars totaling P1,875,00.00. His commission would be:

Commission = P1,875,000 x 2.5%

= P46,875.00

Commission and Salary

Generally, if a person is employed by a firm as a salesman, he/she is given a basic salary in addition to the
commission he/she is given on his/her sales. His/Her gross earnings, therefore, are equal to

Gross Earnings = Basic Salary + Commission

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Using our examples above for commission only, and assuming that Carmen Yambao and Jed Montenegro are
employees with basic salary, the gross earnings of Carmen and Jed would be as follows:

a. Carmen Yambao’s gross earnings assuming a basic salary of P10,000.00 per month:

Gross Earnings = Basic Salary + Commission

= P10,000 + P1,035,000 x 2%
= P10,000 + P20,700
= P30,700

b. Jed Montenegro’s gross earnings assuming a basic salary of P12,500.00 per month:

Gross Earnings = Basic Salary + Commission

= P12,500 + P1,875,000 x 2.5%
= P12,500 + P46,875
= P59,375

In certain cases, however, a sales employee that is given a basic salary earns commission on sales above a
certain figure.

For example, Eugene Tito is a sales representative earning a basic salary of P18,000.00 a month plus 3%
commission on his sales exceeding his quota of P15,000.00. Assume he made a total sales of P36,000.00 for
the current month. Find his gross earnings.

Given: P18,000 basic salary per month

3% commission on sales above P15,000 (Sales-Quota)
P36,000
Find: Gross Earnings
Solution: Gross Earnings = Basic Salary + Commission
= P18,000 + 3%(Sales – Quota)
= P18,000 + 3%(P36,000 – P15,000)
= P18,000 + 630
= P18,630

Gem Bandivas is paid a basic salary of P9,400.00 a month plus commission all sales above her quota of
P30,000.00 a month according to the following schedule:

1% on first P20,000
2% on next P20,000
3% on sales above quota exceeding the foregoing P40,000

Compute for her gross earning if she sells a total of P75,360.00 for the past month.
Given: Monthly Salary = P9,400
Sales Quota = P30,000
Sales = P75,360
Commission = see schedule above

Find: Gross Earnings

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Solution: Let us first solve for the commission:

Total Sales =P75,360.00
Less quota = 30,000.00
Sales subject to commission =P45,360.00
First (20,000 x 1%) =P 200.00
Next (20,000 x 2%) = 400.00
Balance (5,360 x 3%) = 160.80
Total Commission =P 760.80
Add: Basic Salary = 9,400.00
Gross Earnings =P10,160.80

Override is generally paid to the marketing and/or product manager as their incentives on the sales of people
under them.

Example: M. Coronilia is a product manager with five sales representatives under him. The company gives
him an annual salary of 126,000.00; commission of 5%on his own sales; and an override of ½%on his men’s
sales. Find his gross earnings for the month if his total sales is 365,500 with his men able to sell a total of
P1,548,263 for the month.

Given: Annual salary = P126,000

His sales = P365,500
His men’s sales = P1,548,263
His Commission = 5%
His override = ½% of his men’s sales

Find the Gross Earnings of M. Coronilia

Solution:
Commission = 5% x P365,500 = P18,275.00
Override = ½% x P1,548, 263 = 7,741.32
Basic Salary = P126,000 ÷ 12 = 10,500.00
Gross earnings =P36,516.32