Module Business Math Chapter 3

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CHAPTER BUYING AND SELLING

3
Name: __________________________________ Week/Date: __________________
Grade & Section: ____________________________ Teacher: Sir. Jeff
Lesson 3.1 Trade Discount

Learning Outcomes of the Lesson at the end of the lesson, the student is able to:
❖ Identify the original price, discount, and rate in a problem
❖ Compute single trade discounts, and
❖ Solve problems on original price, discount, and rate.

Introduction:
A trade discount is the amount by which the retail price of the product is reduced by the
manufacturer when it is sold to the reseller or costumer. Trade discount problems are percentage – related
problems. The formula used to solve for the trade discount is given by 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 =
(𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑃𝑟𝑖𝑐𝑒) × (𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒).

Let’s Explore
Consider the following problem:
Prince purchase 8 pairs of jag jeans at a discount of 25%, which are listed at a price of ₱ 1 200 per
piece. How much does each jag jeans cost? How much will he save from buying 8 pairs of jeans?
It is ordinary to see discounts on price goods or commodities so that business owners will increase
their sales by encouraging costumers to purchase in large quantities. It is one way to attract more people
and keep updated with price changes after list of goods have been printed.
Trade discount problems are percentage-related problems. We recall the formula, 𝑃 = 𝐵 × 𝑅 where
percentage P is the trade discount, the base B is the original price of goods or commodity, and R is the
discount rate.

Going back to the problem,

Original price: ₱ 1 200


Rate of discount: 25%
Trade discount: unknown

Trade Discount = (𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒) × (𝑟𝑎𝑡𝑒)


= (1 200) × (0.25)
= ₱ 300
The price for the pair of jeans = 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 – 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡
= 1200 − 300
= ₱ 900
The total discount from buying 8 pairs of jeans is
(8) × (300) = ₱ 2 400
Prince, therefore, could save ₱ 2 400 from buying 8 pairs of jeans.

Example 3.1.1
Jenny saved a total of ₱ 1 200 after a 15% discount was given to all her purchases, how
much was her total purchase?
Solution:

Trade Discount: ₱ 1 200


Discount rate: 15%
Total purchase: unknown

𝑇𝑟𝑎𝑑𝑒 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡
𝑇𝑜𝑡𝑎𝑙 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 =
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒

1 200
=
0.15

= ₱ 8 000

Example 3.1.2
A split type inverter air conditioner unit listed at ₱36 000 with a discount of ₱7 200 is
offered to a costumer. Determine the discount rate.

Solution:

Original Price: ₱ 36 000


Discount: ₱ 7 200
Discount rate: unknown
𝑇𝑟𝑎𝑑𝑒 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒 =
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒

7 200
=
36 000

= 0.2 × 100
= 20%
Example 3.1.3
Family Saver’s Supermarket places a ₱3 500 worth of order for assorted brands of
chocolate. The chocolate wholesaler gave a 25% discount. How much is the trade discount?

Solution:

Original price: ₱3 500


Discount rate: 25%
Trade discount: unknown
𝑇𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 × 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
= 3 500 × 25%
= 3 500 × 0.25
= ₱875
Example 3.1.4
In a video store, a DVD that sells for ₱375 is marked 10% off. What is the trade discount?
What is the sale price of the DVD?

Solution:

Original price: ₱375


Discount rate: 10%
Trade discount: Unknown
𝑇𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 × 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
= 375 × 10%
= 375 × 0.10
Trade discount= ₱37.50

𝑆𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝐷𝑉𝐷 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 − 𝑇𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡


= 375 − 37.50
= ₱337.50
Example 3.1.5
The 40% discount on a tennis racket amounts to ₱2 360.00
Compute:
a. The original price
b. The net prices
Solution:

𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 2 360


a. Original price= 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡
= 0.4
= ₱5 900

b. Net price = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 − 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡

= 5 900 − 2 360
= ₱3 540

Lesson 3.2 Discount Series

Learning Outcomes of the Lesson at the end of the lesson, the student is able to:
❖ Determine the new cost of a product after giving series of discounts
❖ Compute for the equivalent single discount rate of discount series
❖ Compute the saving from a single discount rate and saving from a discount

Introduction:
Most boutique or shop in malls offer more than one discount in their items. In addition to the basic
trade discount offered to all customers, the seller might also offer small discounts for large volume of
purchase and for early orders for seasonal items.
A type of discount in which several discounts are given to a customer at different times and different
conditions is called discount series. Discount series are given to customers in order to encourage them to
purchase volume. It is also effective in promoting seasonal items and to entice new set of customers.

Let’s Explore

Suppose two or more discounts are offered on the same product, how do we solve its net price? Let
us consider the problem below.
An appliance store offers a refrigerator at ₱14 000 with discount of 25% and 15%. How much does
a refrigerator cost?
To further attract buyers, two or more trade discounts are offered on the same item.

Original price of refrigerator: ₱14 000


Discount rates: 25% and 15%
Cost of the refrigerator: unknown
Solution:

Applying discount rates


We first apply the first discount rate to the original price and subtract the discount obtained from
the list price.
14 000 − 0.25(14 000) = ₱10 500
Then, we apply the second discount rate on the first discounted price and subtract the discount
obtained.
10 500 − 0.15(10 500) = ₱8 925
Therefore, the cost of the refrigerator given in a series of discounts 25% and 15% is ₱8 925

Solution:

Using the single discount rate (Equivalent of the Discount Rates)


We obtain the first the complements of percent rates and obtain their respective decimal
equivalents.
PERCENT GIVEN COMPLEMENT OF PERCENT DECIMAL EQUIVALENT OF
COMPLEMENT OF PERCENT
25% 75% 0.75
15% 85% 0.85

Then, multiply the decimal obtained and subtract the result from 1. The result obtained is the single discount
rate equivalent (in decimal) of the given discount series.

(0.75)(0.85) = 0.6375
1 − 0.6375 = 0.3625

Lastly, multiply the original price by the single discount rate equivalent and subtract the result from the
original price.
0.3625(14 000) = ₱5 075
14 000 − 5 075 = ₱8 925

ILLUSTRATION:
Consider a discount series of 20%, 10%, and 5%
At first, a 20% discount was given during the time of sale. Another 10% discount is given to the customer,
if he or she will buy a target number of units. If payment is made in advance, the customer will also receive
a 5% discount.

Example 3.2.1
In the given discount series 20%, 10%, and 5% given to an item, answer the following:

a. Will it be the same as adding the discounts together, and apply a 35% single trade discount?

Answer:

No, because each time we apply an additional discount, our base becomes smaller. Applying a 35%
discount directly to the original price would result in a different net price.

For example, the selling price of a split-type air-conditioner listed is ₱20 000. After giving a 35%
discount, the new selling price will be
20 000 − 0.35(20 000) = ₱13 000

However, giving a discount series of 20%, 10%, and 5%, we compute the selling price as follows,

b. How can we obtain an equivalent one-time discount rate for the series of discounts of 20%, 10%,
and 5%?

Solution:
We compute first the complement of percent
The complement of percent is the difference between 100% and the given percent
PERCENT GIVEN COMPLEMENT OF PERCENT DECIMAL EQUIVALENT OF
COMPLEMENT OF PERCENT
20% 80% 0.80
10% 90% 0.90
5% 95% 0.95

We multiply the decimal equivalent of the complement of percent, 0.80(0.90)(0.95) = 0.684 = 68.4%
Since 100% − 68.4% = 31.6%, the series of discount 20%, 10% and 5% is equivalent to 31.6%

Example 3.2.2
A cellphone brand is subject to a series of discount of 15%, 10%, and 5%. If the net price
is ₱5 000, what is the estimated list price of the cellphone?

Solution:

Multiplying the complement of percent (discount rates) and the original price of the item will result to the
net price. Thus, we will be arrived at a formulated equation as

Net Price= (1 − 𝑑1 )(1 − 𝑑2 )(1 − 𝑑3 )(𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒)


5 000 = (1 − 0.15)(1 − 0.10)(1 − 0.05)(𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒)
5 000 = (0.85)(0.90)(0.95)(𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒)
5 000 = (0.72675)(𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒)
₱6 879.94 = 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒

The estimated list price of the cellphone brand is ₱6 900

Lesson 3.3 Profit and Loss

Learning Outcomes of the Lesson at the end of the lesson, the student is able to:
❖ Solve for the profit given the cost and net sales
❖ Determine if the profit or loss is achieved in a given transaction

Introduction:
The difference between what merchant invests into business and what he receives in return is called
profit. To compute for profit, we use
𝑝𝑟𝑜𝑓𝑖𝑡 = 𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 − 𝑐𝑜𝑠𝑡
Where net sales are the amount of money receive from selling goods, and cost is the amount paid for the
goods.
However, there are cases in which the net sales of good is less than its cost; such difference is called loss.
We can express loss mathematically as
𝐿𝑜𝑠𝑠 = 𝐶𝑜𝑠𝑡 − 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
In the case when net sales equal to cost, we call such situation as break-even.

Let’s Explore
Rodrigo is engaged in a buy-and-sell business of perfume. He bought 10 boxes of perfumes. Each
box cost ₱12 000 and contains a dozen of perfume bottles. He is planning to sell one perfume bottle at ₱1
500. What is he expected profit on the 10 boxes of perfumes?
The ultimate goal of business whether retail or wholesale is to earn a profit. Getting the difference
between the amount of money earned from selling 10 boxes containing a dozen of perfume bottles and the
cost of those 10 boxes gives the profit.
Given: 10 boxes of perfumes containing a dozen of bottles
120 bottles bought by Rodrigo
Cost of each box = ₱12 000
Selling price of each perfume = ₱1 500

Required Profit

To solve the problem, we compute first the cost of 10 × 12 = 120 𝑏𝑜𝑡𝑡𝑙𝑒𝑠


Since each box cost ₱12 000 and Rodrigo bought 10 boxes,
Cost = 12 000(10) = ₱120 000

Rodrigo can expect that the net sales he will get upon selling 10 boxes consisting of 120 bottles are,
Net sales = 1 500(120) = 180 000

Thus, he has
Profit = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 − 𝐶𝑜𝑠𝑡
= 180 000 − 120 000
= ₱60 000

Example 3.3.1
A watch store owner decided to offer a 20% discount for a particular brand of watch which
sells at ₱35 000. By doing so, his average sales increased from 5 watches to 12 watches a day. If he bought
one watch at a price of ₱22 000 from the supplier, by how much was the daily profit increased or decreased
by offering such discount on the watch?

Solution:

We compute for the daily profit before and after the discount was offered
Without discount,
Profit per watch = 35 000 − 22 000
= ₱13 000
Profit for selling 5 watches = 13 000(5) = ₱65 000
With 20% discount,
New selling price = 35 000 − 0.2(35 000) = ₱28 000
Profit per watch = 28 000 − 22 000 = ₱6 000
Profit for 12 watches = 6 000(12) = ₱72 000
Increase in daily profit = 72 000 − 65 000 = ₱7 000

Sometimes, a businessman experience loss because of mismanagement, unfavorable market conditions,


change in trends for fashionable goods, poor economic situation, unsold perishable goods, release of new
and advance models for appliances and electronic gadgets, and a lot more. The example below describes
such condition.

Example 3.3.2
Annie bought one dozen of smartphones for ₱200 000 with a discount of 5%. Half dozen
was sold at a price of ₱18 000 per unit. However, a new model of smartphone became available in the
market, so she sold the remaining half dozen at ₱12 000 each unit. What was her profit or loss?

Solution:

Cost of 12 dozen of smartphones = 200 000 − 0.5(200 000) = ₱190 000


Net Sale:
For 6 smartphones at a price of 18 000 per piece = ₱108 000
For 6 remaining phones at a price of 12 000 per piece = ₱72 000
Total net sales = ₱180 000
Loss = 𝐶𝑜𝑠𝑡 − 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 = 190 000 − 180 000 = ₱10 000
Example 3.3.3

Jay-R bought two digital cameras at ₱15,490 each. He sold one of the cameras to his friend at ₱13,500,
while the other one was sold to his neighbor at ₱16,200. How much is Jay-R's profit or loss?

Solution:

Cost of 2 digital cameras =(15 490)(2) − ₱30, 980


Net Sales = 13 500 + 16 200 − ₱29, 700
Loss = 𝐶𝑜𝑠𝑡 − 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
= 30 980 − 29 700
= ₱1, 280

Example 3.3.4

Michelle went to Baguio and bought 20 jars of strawberry jam for P3,500 with 15% discount. When she
got back to Manila, she sold 10 of the jams for a total of ₱1,800, and the rest at P185 each. How much
profit did Michelle gain?

Solution:
Cost of the 20 jars of strawberry jam = ₱3, 500 − ₱3, 500(0.15) = ₱2975

Net Sales:
First 10 jars = 𝑃1800
Remaining 10 jars = 𝑃1850
Total Net Sales = 𝑃3650
Profit= 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 − 𝐶𝑜𝑠𝑡
= 3 650 − 2 975
= ₱675

Lesson 3.4 Markup and Markdown

Learning Outcomes of the Lesson at the end of the lesson, the student is able to:
❖ Differentiate markup and markdown
❖ Solve problems related to markup and markdown, and
❖ Obtain the selling price after a markup or markdown

Introduction:
To cover the expenses or overhead of running the business, a markup (M) is put on products. The
sum of the cost (C) and markup determines the selling price (s)
Selling Price = 𝑐𝑜𝑠𝑡 + 𝑚𝑎𝑟𝑘𝑢𝑝
𝑆 =𝐶+𝑀
Markup can also be defined as the sum of the expenses (E) and profits (P).
𝑀𝑎𝑟𝑘𝑢𝑝 = 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑃𝑟𝑜𝑓𝑖𝑡𝑠
𝑀 =𝐸+𝑃
Given all the formulas above, we can solve for the selling price as:
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = 𝐶𝑜𝑠𝑡 + 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆 =𝐶+𝐸+𝑃
Let’s Explore
A clothing line company purchases cotton at a cost of ₱60 per meter. 30% of the cost goes to their
operating expenses, and the goal of the business is to earn a profit that 25% of the cost. How much is the
company’s markup on the cotton? How much is the selling price of the cotton?
In the problem, we have

Cost per meter of cotton: ₱60


Operating Expenses: 30% of the Cost
Profit: 25% of the Cost

Adding the expenses and profits from a business result in a markup.


So, the markup may be computed as follows,

Markup = 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑃𝑟𝑜𝑓𝑖𝑡𝑠


= (0.3)(60) + (0.25)(60)
= ₱33
The company may sell the product by adding the cost and the markup

𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = 𝐶𝑜𝑠𝑡 + 𝑀𝑎𝑟𝑘𝑢𝑝


= 60 + 33
= ₱93 𝑝𝑒𝑟 𝑚𝑒𝑡𝑒𝑟
Suppose we want to compute for the rate of markup, we can either base the rate of markup on the cost or
on the selling price.
When markup is expressed as a percentage of the cost or selling price, we call it the rate of
markup.
The formula for the rate of markup is based on the cost denoted by 𝑀𝑐 is given by:

𝑀𝑎𝑟𝑘𝑢𝑝 𝑀
𝑀𝑐 (%) = (100) = (100)
𝐶𝑜𝑠𝑡 𝐶

And the formula for the rate of markup based on the selling price denoted by 𝑀𝑠 is given by,

𝑀𝑎𝑟𝑘𝑢𝑝 𝑀
𝑀𝑠 (%) = (100) = (100)
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑆

Example 3.4.1
The cost of a new pair of sunglasses is ₱4 500. The selling price is ₱8 000. What is the rate
of markup based on cost?

Solution:

Since 𝑆 = 𝐶 + 𝑀, then
𝑀 =𝑆−𝐶
= 8 000 − 4 500
= ₱3 500

Computing for the rate of markup based on cost,

𝑀 3 500
𝑀𝑐 (%) = 𝐶
(100) = 4 500 (100) = 0.7778(100) = 77.78%
Example 3.4.2
A new pair of shoes costs ₱5 500. The rate of markup based on the selling price is 15%.
What is the selling price and markup?

Solution:

Since = 0.15(𝑆), 𝑤𝑒 𝑔𝑒𝑡


𝑆 =𝐶+𝑀
𝑆 = 5 500 + 0.15𝑆
0.85𝑆 = 5 500
𝑆 ≈ ₱6 470.59
To compute the markup,
𝑀 = 0.15(𝑆) = (0.15)(6 470.59) = ₱970.59
Markup can also be computed by
𝑀 = 𝑆 − 𝐶 = 6 470.59 − 5 500 = ₱970.59

Business Owners reduce the price of their products to match competitors price adjustments.
However, imposing a markdown may result into zero profit. To compute 1or the highest rate of
markdown, we solve for the following elements first: the cost of one unit of commodity and the price that
will cover all the costs and expenses.
1. A reduction in the regular selling price of a particular product occurs in response to market conditions.
It is called a markdown.
2. The formula for the total cost is given by 𝑇𝐶 = 𝐶 + 𝐸 where TC is the total cost, C is the cost, and E
is the expense
3. A breakeven happens when a business has zero profit for a particular product. The product's total cost
is equal to its price. It means that the business does not make any profit or suffer from any loss.

Since 𝑆 = 𝐶 + 𝐸 + 𝑃 and 𝑇𝐶 = 𝑡 𝐸, then the selling price S become


𝑆 = 𝑇𝐶 + 𝑃
4. The profit or loss can be obtained by getting the difference between the selling price and total cost.
𝑃 = 𝑆 − 𝑇𝐶

Note that, when the value of P is negative, the selling price failed to cover the cost of buying the product,
thus, the business suffers from loss.

Example 3.4.3
A sari-sari store sells a soft drinks case at ₱360. The store’s overhead expenses are 40%
of cost and the owner wants a profit that is 25% of the cost.
a. How much is the cost of one case soft drink?
b. At what price must the store sell the case to cover all costs and expenses?
c. What is the highest rate of markdown so that the store will break even?
d. Find the rate of discount that can be offered without acquiring an absolute loss (that is, failure to
get back the cost of the commodity).

Solution:

a. Cost of one soft drink case


𝑆 =𝐶+𝐸+𝑃
= 𝐶 + 0.4𝐶 + 25𝐶
𝑆 = 1.65𝐶
360 = 1.65𝐶

360
𝐶= ≈ ₱218.18
1.65
b. Price that will cover all the costs and expenses

Total cost 𝑇𝐶 = 𝐶 + 𝐸
= 𝐶 + 0.4𝐶
= 1.4𝐶 = 1.4(218.18) = ₱305.46
c. Maximum Markdown to break even: 360 − 305.46 = ₱54.54

𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛 54.54
Rate of Markdown = = = 0.1515 = 15.15%
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 360
d. Lowest Price:
For the maximum amount of discount which is 360 − 218.18 = ₱141.82

𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 141.82


Rate Discount = = 0.3939 = 39.39%
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 360

Example 3.4.4
Find the markdown rate if the DVD was originally priced at ₱290.00 and it was sold at
₱240.00

Solution:

a. Solving for the markdown


Markdown 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 − 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
Markdown = 290.00 − 240.00
Markdown = ₱50.00

b. Solving for the rate of markdown


𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛 50.00
Rate of Markdown = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = 240.00 = 0.208333 = 21%

The rate of markdown is 21%

Lesson 3.5 Interest

Learning Outcomes of the Lesson at the end of the lesson, the student is able to:
❖ Compute for loan interest
❖ Differentiate ordinary interest from exact interest
❖ Calculate interest using unpaid balance method
❖ Convert interest rate per year to equivalent monthly rate and vice versa
❖ Compute interest from monthly installment payments

Introduction:

Interest is the percent of the amount of credit extend. In loans, it may be treated as an expense on
the part of the borrower or debtor and may be viewed as an income on the part of the lender or creditor.
Short-term and long-term credits or transactions are commonly offered by banks or any credit companies.
Short-credits are credits good for one day or up to one year, while long term credits are those for longer
than one year. To compute the simple interest, we use I =PRT.
Let’s Explore
Consider the problem.
October of last year, Carl barrowed an amount of ₱200 000 from PQR Cooperative at an interest
rate of 2% to finance his house renovation. How much is the interest of his due date is October of next year?
Most business and people acquire assets without paying its full cost at the time of purchase. The
seller may then charge the buyer for this privilege. The amount of charge for such a privilege is called
interest. In the loan made by Carl, we compute for loan interest as follows:

Given
𝑃 = ₱200 000
𝑅 = 2% = 0.02
𝑇 = 1 𝑦𝑒𝑎𝑟

Solution:

𝐼 = 𝑃𝑅𝑇
𝐼 = 200 000 × 0.02 × 1
₱4 000

The amount of money ₱200 000 which was barrowed from the cooperative is called the principal
(P) and the interests charge (I) =₱4 000, is percent of principal. The period of time where the lender or
creditor will charge the interest starting from the loan date up to the loan repayment date is called loan term
or interest period (T), which is 1 year in the problem and the quoted percent is the rate 2%, Which is R.

Suppose the term of the loan is stated as a certain number of days, we may divide the number of
days by 365 or 360. When the divisor is 360, we are applying ordinary interest, which is still used by many
businesses. The banks and the other credit unions use the exact interest, in which 365 is used as a divisor.
Lenders charge interest on the amount of the money that the borrower owes, which is the principal.
The loan most of the time requires to be paid in regular and monthly payments. It may or not be equal every
month. When the borrower pays all the interest for a particular month and also pays a portion of the
principal, the amount of the principal that has not yet been paid is called unpaid balance.

Example 3.5.1
Compute the interest on a credit purchase of ₱30 000 at 8% for 10and 15 months

Solution:

Interest for 10 months: Interest for 15 months:

𝐼 = 𝑃𝑅𝑇 𝐼 = 𝑃𝑅𝑇
10 15
30 000(0.08) 12 = 2 000 30 000(0.08) 12 = 3 000

Example 3.5.2
Francis wants to know which credit company offers lower interest at the same
interest rate of 9% if he plans to borrow a quick cash of 𝑃30, 000 for 90 days.
Company A uses the ordinary interest method to compute for the interest while
Company B applies exact interest method. Which company will he choose? What is
the difference between the interests offered by the two companies?
Solution:
In ordinary Interest
𝐼 = 𝑃𝑅𝑇
90
= 30 000(0.09)
360
= ₱675

In exact Interest
𝐼 = 𝑃𝑅𝑇
90
= 30 000(0.09)
365
= ₱665.75

In the previous example, the advantage of 365-day year offered by Company B that is more realistic and
financially better for the borrower since the interests smaller under the same interest rates. He could save
an amount of 675 − 665.75 = ₱9.25 if he borrowed the money from Company B instead of borrowing
it from Company A.

Example 3.5.3

Convert each rate.


a. 15% per year to the equivalent monthly rate.
b. 1.5% per month to the equivalent annual rate.

Solution:

a. Divide the annual rate by 12 to obtain


15 ÷ 12 − 1.25% monthly
b. Multiply the monthly rate by 12 to get
1.5 𝑥 12 = 18% annually
Many people use credit card to purchase goods or services for them to attain quick possession or
immediate service, but delay the payment. In credit cards, an interest charge or finance charge is normally
offered. The finance charges on the unpaid balance each month is the general concept of charging for
credit purchases.

Example 3.5.4

Elena wants to use her credit card to buy ₱10, 000 worth of items payable in 10 months at 15% per year
on an annual and a monthly basis.

SOLUTION

Using 𝐼 = 𝑃𝑅𝑇, the principal 𝑃 can be treated as the unpaid balance. However, T is expressed in months
and R is now the monthly rate.
The interest on an annual basis is computed as follows:

10
𝐼 = 𝑃𝑅𝑇 = 10, 000(0.15) = 1250
12

On a monthly basis, the interest may be computed as,

𝑅 = 15(𝑎𝑛𝑛𝑢𝑎𝑙𝑙𝑦) ÷ 12 = 1.25% 𝑚𝑜𝑛𝑡ℎ𝑙𝑦

𝐼 = 𝑃𝑅𝑇 = 10, 000(0.0125)(10) − 1250


Note that single payment simple interest which is a direct method of computing interest on loans over a
short period of time is applied.

Example 3.5.5

Last month, Philip borrowed ₱20, 000 at 10% interest rate. He repaid the loan in three monthly payments.
If he wanted to pay ₱6, 750 the following 2 months and pay the remaining balance on the third month,
compute the ordinary interest (with 360-day year) using unpaid-balance method.

SOLUTION:

Illustrated in the next example is a common practice in borrowing business. Here, the objective is to
compute for simple interest on unpaid balance.
To compute tor the interest using unpaid-balance method, we follow the following steps:

Step 1: Determine the values of P, R, and T.


Step 2: Calculate the interest payment for the month.
Step 3: Subtract the interest payment from the total monthly payment to compute for the principal
payment.
Step 4: Subtract the principal payment from the previous unpaid balance to get the new unpaid balance.
Step 5: Repeat steps 1 to 4 until the last month. To compute for the total payment for the last month, add
the interest due to the unpaid balance

First Month Computations:


30
𝐼 = 𝑃𝑅𝑇 = 20 000(0.10) ( ) = ₱164.38
360
Amount paid on principal: 6 750 − 164.38 = ₱6 585.62
From the loan of ₱20 000, the new unpaid balance is now
20 000 − 6 585.62 = ₱13 414.38

Second Month Computations:


This time the new principal is given by ₱ = 13 414.38 the rate is still 𝑅 = 10% and T is still 𝑇 = 1
month = 30 𝑑𝑎𝑦𝑠
30
𝐼 = 𝑃𝑅𝑇 = 13 414.38(0.10) ( ) = ₱110.26
360
This time, the amount paid on principal is,
6750 − 110.26 = 6639.74
13 414.38 − 6639.74 = ₱6 675.64

Last Month Computations:


30
The unpaid balance is now ₱6 675.64, with the same rate of 10% and 𝑇 = 365

𝐼 = 𝑃𝑅𝑇

30
= 6675.64(0.10) = 54.87
365

Philip has to pay 6 675.74 + 54.87 = ₱6, 730.51


Thus, the amount paid on the principal is now, ₱6, 730.51
In credit sale, the customer may pay the purchase price and credit charges in monthly payments called
installments. It may be computed just once on the principal or it may be computed monthly on the unpaid
balance.

Example 3.5.6
Anica bought perfume using a credit card at a price of ₱2, 400 payable in four months at
15%. The principal is also repaid equally each month with four payments of ₱600 each. Compute
tor the total interest when it is paid equally over four months.

SOLUTION:

Since , 𝐼 = 𝑃𝑅𝑇
4
= 2 400(0.15) = ₱120
12

Thus, the total interest is ₱120.


120 ÷ 4 = ₱30 per month for interest

The summary of all computations is presented by the table below

MONTH UNPAID MONTHLY PRINCIPAL TOTAL NEW


BALANCE INTEREST PAYMENT PAYMENT BALANCE
2 1 800 30 600 630 1200
3 1 200 30 600 630 600
4 600 30 600 630 0
TOTAL 120 2 400 2 520

Example 3.5.7
Consider Example 3.5.5. Suppose instead, the interest is computed on the unpaid balance each
month, calculate the total interest on Anica's purchases. Assume that the principal is still repaid 600 per
month for four months.
Computing the equivalent monthly interest of 15% per year, we obtain 15% ÷ 12 = 1.25% per
month,
Computation may be summarized as follows:

1ST MONTH 2 400(0.0125) = ₱30


2ND MONTH 1 800(0.0125) = ₱22.50
3RD MONTH 1 200(0.0125) = ₱15
4TH MONTH 600(0.0125) = ₱7.50

Computation may be summarized as follows:


MONTH UNPAID MONTHLY PRINCIPAL TOTAL NEW
BALANCE INTEREST PAYMENT PAYMENT BALANCE
1 2 400 30 600 630 1 800
2 1 800 22.5 600 622.5 1 200
3 1 200 15 600 615 600
4 600 7.5 600 607.5 0
TOTAL 75 2 400 2 475
Lesson 3.6 Commission

Learning Outcomes of the Lesson at the end of the lesson, the student is able to:
❖ Compute commission on total sales and sales where product/order was cancelled or return
❖ Solve commission based on bonuses
Introduction:
Commission maintains the relationship between its employee to those in the firm. It acts as an
agreement between the sales people and the firm for the specific targets that needs to be hit. It may also
serve as the reward for the services rendered by the sales people.

Let’s Explore

Consider the problem.


Daniel is a sales agent. He receives a 3% commission from the total amount of product he sells during a
month. Suppose he receives a base salary of ₱12, 000 every month. Calculate his commission and his
total pay during August where he sold an amount of ₱60, 000 worth of products. As a sales agent Daniel
will receive an amount of money for selling the product. Such amount is referred to as commission.
To compute for the commission, simply multiply the commission rate by the total sales amount.

For Daniels commission,


3% 𝑜𝑓 (60 000) = ₱1, 800
To solve for the gross pay during the month of August, add the commission and the base salary,

12 000 + 1800 = ₱13, 800.

In sales, the amount of money received by an employee or agent for performing a business
transaction or service is called commission.

Example 3.6.1
Carla works on a "commission-only" Das s and receives 3% on her monthly sale without a base
salary. What is her commission and total pay during a month when she sells 120, 000 worth of appliance,
but her customer cancel led an order for 12, 000 and returned the appliance which was already delivered

SOLUTION:
There are instances at which goods are returned and orders are cancelled. If it happens, the sales
are not eligible for a commission with that, we compute for the commission as follows:

12 000 is subtracted to the total sales


120 000 − 12 000 = ₱108, 000
So from ₱108, 000 sale, the commission is computed as,
108 000(0.03) = ₱3, 240

Some companies apply the graduated commission rates to encourage their agents to sell more goods.
Graduated commission can be increased if the agents level of sales will increase,
Example 3.6.2
Mary has a monthly commission plan where she receives 2.5% on the first ₱100, 000
of sales curing the rmonth and 3.5% on sales above ₱100, 000. I1 her total sales during the month
is ₱150, 000, compute her commission,

SOLUTION:
We compute for the commission as follows

150 000 − 100 000 − 50 000

SALES AMOUNT COMMISSION RATE COMIMISSION


₱100.000 0.025 2, 500
₱50, 000 0.035 1, 750
TOTAL COMMISSION 4, 250

Example 3.6.3
Christopher has a monthly commission plan where he receives 2% commission on all his sales for
the month. If his sales exceed ₱40, 000, a bonus of 1% of everything over ₱40,000 is given to him. For
sales more than ₱80, 000, another additional 1% of everything over ₱80, 000 is received, How much is
his total commission month if he had total sales of ₱96, 500?

SOLUTION:

He automatically earns a 2% commission on his sales.

96 500(0.02) = 1, 930.

To compute his earnings from the 1st bonus,

96 500 − 40 000 = ₱56, 500


(56 500)(0.01) = ₱565

To compute his earnings from the 2nd bonus,

96 500 − 80 000 = ₱16, 500


(16 500)(0.01) = ₱165

Total Commission = 1 930 + 565 + 165 = ₱2, 660

Example 3.6.3
Joyce is a sales agent for kitchen appliances. Her basic monthly salary is ₱16, 000. As an agent,
she is expected to sell ₱10, 000 worth of appliance every week. Whenever she exceeds the quota, she gets
a 3% commission on the week's total sale. The following table shows how she did on sales for the month
of September.

WEEK SALES
1 ₱9 885
2 ₱14 398
3 ₱14 091
4 ₱16 818
a. How much is Joyce is commission all in all?
b. How much does she earn for the month of September?

a Since she didn't exceed the quota on the first week, she’s only entitled to the commission on the
preceding weeks.
To compute for the commission for the 2nd week

14 398(0.03) − ₱431.94

To compute for the 3rd week,

14 091(0.03) − ₱422.73

To compute for the 4th week,

16 818(0.03) − ₱504.54

Total Commission = ₱1, 359.21

b. For the month of September, aside from her base monthly salary of ₱16 000, she has a commission
amounting to ₱1, 359 21. Therefore, her total earning September is

16 000 + 1 359.21 = ₱17, 359.21


Name: __________________________________ Week/Date: ___________________
Grade & Section: ____________________________ Teacher: _____________________

EXERCISES
A. FOR TRADE DISCOUNT
a. Complete the table
1.
ORIGINAL TRADE DISCOUNT RATE DISCOUNTED
PRICE DISCOUNT PRICE
₱6 500 ₱1 200
₱500 10%
₱2 100 ₱5 600
₱27 800 35%
Given: 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒 – 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑝𝑟𝑖𝑐𝑒
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 – 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑 𝑝𝑟𝑖𝑐𝑒

2 How much is the selling price of a double-burner gas stove listed at ₱2 650 if the discount of 15%
as given to the customer?
1. A house and lot with original amount of ₱2 300 000 was sold at a discounted price of ₱2 150 000.
What was the discount rate given to the buyer?
2. A rice cooker after a 20% discount was sold to a customer at a price of ₱790. What is the original
price of the rice cooker?
3. During a clearance sale, a polo shirt originally at ₱1 700 is reduced to ₱800. What percent of the
original price is the discount?
4. The price of the music player originally sold at ₱3 500 is reduced to ₱2 800. What is the discount
rate?
5. Arnold wants to buy a pen for his son. He checks the prices of 2 pen brand: Brand A pen, cost ₱70
per piece while brand B pen cost ₱95 per piece. Buying 10 pieces of brand A pen, a customer will
be given 5% discount for each pen he will buy. If he buys 10 pieces of brand B pen, a 7% discount
per piece will be given to him. In which brand of pen, he will save more? Explain.
6. A discount of 𝑃400 is given to a customer after a 20% discount for every item he will buy t he
bought 10 units, how much was the total original price of the 10 units he bought?
7. Cindy wants to buy a volleyball. Its original price is 𝑃965.00 and is on sale at 25% discount.
How much will Cindy save with the discount?
8. The Sanguniang Kabataan wants to sponsor 150 bags for their organization's scholars. Each
bag costs P375.00. If they were to buy from the factory, they will be given 45% off the total
purchase. However, if they buy from the store, they will be given 50% off the price for each
Dag. Where will they have a cheaper purchaser Explain.

B. FOR DISCOUNT SERIES


a. Compute for the equivalent single discount of the following discount series.
1. 20% and 10%

2. 5% and 12%

3. 68% and 7%

4. 25% and 40%

5. 15% and 35%

6. 17% and 33%


7. 26% and 11%

8. 30% and 40%

9. 25% and 35%

10. 10% and 18%

b. Solve each of the following problems.


1. Which has a greater discount for an item worth 𝑃10, 000, discounts of 20%, 15%, and 10% or
discounts of 10%, 20%, and 15%7 Justify.

2. Which series will give a better discount, 25% and 15%, or 10%, 5% and 25%? Why?

3. Chris bought a pair of pants at P2,500 and 5 shoes at 𝑃2, 500 each. If the department store
offers a successive discount of 107 and 5% to the total purchase, how much should Chris pay?

4. Buying 5 TV sets, a costumer will receive discounts of 10% and 5% for his total purchase. If
the tag price of each TV set is 𝑃15, 000. How much did he pay for the 5 TV sets?

5Which appliance store offers the biggest discount?

STORE X DISCOUNT OF 13%, 5%, 2%


STORE Y DISCOUNT OF 2%, 15%, 3%
STORE Z DISCOUNT OF 10%, 6%, 4%

C. FOR PROFIT AND LOSS


a. Determine whether the following statement shows a profit or loss Situation. Write P for profit
and L for loss.
1. Ben bought a pen at 𝑃10 each and sold it for ₱12.
2. Martha bought a scientific calculator at 𝑃2, 000. When a new and upgraded model was released
after two months, she sells her scientific calculator for 𝑃1, 200 to buy the new one.
3. A banana cue vendor gains ₱100 for selling it at 10 per stick.
4. The cost of 10 pieces personalized calendar is ₱850 and it was sold for ₱150 each.
5. Joy bought a 16gb memory card at ₱600 and decided to sell it to her sister for ₱650.

b. Solve each of the following problems.


1. Greg bought a laptop for ₱28 000 and spent ₱2 500 on its spares. He later sold it for ₱25 000
How much is Greg’s profit or loss?
2. Alden went to Bicol and bought 25 packs of pili nuts for ₱875 with 10% discount. When he got
back to Manila, he sold 15 packs for ₱675, and the rest at ₱40 each. How much profit did Alden
gain?
3. Arman sold a watch to his friend at a loss of 5%. If his friend paid ₱650 for it, find the cost price
of the watch.
4. A mobile phone was sold for ₱4 800. Find the cost price of the mobile phone if the profit is 20%
5. A shopkeeper buys digital camera at ₱5 400 each. Due to price fall in the market, he was forced
to sell them at a loss of 15%. Find the selling price of each digital camera.
6. Alfred buys an old scooter for ₱14 700 and spends ₱1 800 on its repairs. If he sells the scooter
for ₱15 800, what Is his gain or loss percent?
7. Find the profit or loss as percent; when a car is bought for ₱925 000 is sold for ₱850 000
8. Adrian bought 50 dozen pencils at ₱60 a dozen. Out of these, 20 pencils were found broken.
He sold the remaining pencil at ₱7 each pencil. Find his gain or loss percent.
9. Martin bought 18 chairs at ₱350 per chair. He sold 12 of them at ₱450 per chair and the
remaining chairs at ₱300 per chair. Lalculate his gain or loss percent.
10. A dealer loss ₱5 000 when he sells a meat at a loss of 10%. How much is the selling price of
the meat?

D. FOR MARKUP AND MARKDOWN


COST SELLING MARKUP/MARKDOWN RATE OF
PRICE PRICE MARKUP/MARKDOWN
1. ₱25 ₱30
2. ₱48 ₱52
3. ₱350 ₱500
4. ₱280 ₱220
5. ₱390 ₱375
6. ₱450 ₱250
7. ₱2 300 ₱2 800
8. ₱15 000 ₱9 000
9. ₱500 000 ₱650 000
10. ₱1 000 000 ₱900 000

E. FOR INTEREST
1. Hans has a loan of ₱24 00 payable for 6 months at 12% interest computed on the unpaid
balance each month, for 6 monthly payments of ₱4 000 his loan can be repaid, but a loan
registration fee of 1% of the purchase price and an additional ₱100 per month insurance
1
premium is charged. Using 𝑅 = 𝑃𝑇 where P is the average principal over the 6 months and I is
the total of all finance charges, compute for the effective rate.
2. A commercial bank charges 9% interest for a 120-day loan, the exact interest amount is P264.
How much is the principal amount?
3. The Employee's Union charges 10% interest for the short-term loans made less than a year. If I
borrow ₱20 000 and must pay an amount of ₱2 000, what is the length of my loan?
4. Angela read an advertisement for a ₱50 000 loan. The ad informs the borrower that the
company only charges 18% annual interest. It she plans to borrow that amount and repays it
at the end of the year, how much is the interest? What is the amount of interest each month?
5. Richard is starting a small business and he needs a capital of ₱50 000. He already has ₱25 000
and is considering to loan the other ₱25 000 from one of the following lending companies.
Which will be the best company to loan from if Richard wants to pay the lowest interest
possible? (Note: all companies use ordinary interest) Explain.

a. Company A
Rate: 6%
Time: 120 days

b. Company B
Rate 10%
Time: 60 days

c. Company C
Rate: 5%
Time: 150 days

F. FOR COMMISSION
Solve for the following problems.
1. David is paid a monthly salary of ₱12 000 and earns a commission of 4% in sales. It he sold a
total amount of ₱80 000 during the month, how much is his gross pay?
2. Charlie receives 5% commission on all his sales up to ₱12 000. If he is given 7% on all sales in
excess of ₱12 000, how much is his gross pay it his target sales is ₱45 000?
3. Jill asked for an advance of ₱7 500 from her commission. At the end of the month, she was
able to sell a total amount of ₱480 000. If she is paid with a 5% commission, how much is her
gross pay at the end of the month?
4. Red Textile Company pays all their sales people 3% on sales up to ₱50 000 and 5.5%
commission on sales in excess of ₱50 000. If John sold the textile at an amount of ₱75 000 during
May, what is his gross commission tor this month?
5. Alvin receives a monthly salary of ₱6 700 and some additional money by a 5% commission
rate whenever he sells an item. If he sold ₱15 000 worth of items this month, how much
additional money would he get?
6. Haidee makes money by commission rates. She gets 15% of everything she sells. If Haidee
sold ₱23 000 worth of items this month, what is her total salary for the month?
7. Richard makes ₱9 000 a month plus some money by commission rates. He gets 10% of
everything he sells. If Richard sold ₱30 000 worth of items this month, how much is his salary
for the month?
8. Bob makes ₱7 000 a month plus some money he gets by commission rates for everything that
he sells. If Bob sold ₱55 000 worth of items this month and got a salary of ₱30 000, how many
percent is the commission rate?
9. Maine makes a base monthly salary of ₱7 000 and gets 10% of everything she sells. If Maine
got a total salary of ₱12 000 for the month, how much is the worth of items did she sell?
10. Marcelo earns a salary of ₱15 000 and gets 3% of the amount of books he sells. If Marcelo
sold ₱30 000 worth of books this month, how much would be his total salary for this month
If his commission will be increased to 5% the next month, how much would be his additional
money it he sold the same amount?

REFERENCES:

Business Math copyright 2016 by Vibal Group Inc. and Leah M. Lundag, Brian Roy C. Lopez, and Keneth
Adrian P. Dagal

Math Connections copyright 2003 Re-issued 2012 by The Library Publishing House, Inc. Felipe V.
Deguzman, Amelia B. De Vera, Amelia F. Lopez, Ma. And Samonte B. Aguinaldo

Prepared by:

Jeffrey B. Masicap
Subject Teacher
Checked by:

ROMALYN V. CABABAT
School Principal

Approved by:

LEA S. LONTOC Ed D.
School President/ Director

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