Business Math

BUSINESS MATH
LESSON 7
Lesson 7: COMMISSIONS AND OVERRIDES
Salesmen, agents, and brokers are generally paid commissions as incentives for
increasing a firm’s sales. Salesmen are employees f the firm either paid on a straight
commission basis or on salary plus commission basis. Agents and brokers are generally
not employees on the firm and paid commissions only. Marketing and/or products manager
are generally paid overrides on the sales of people under them. Override, also, applies
when a different commission rate is applied if a certain target is reached. For example, the
commission rate may be 2% of sales, but retroactively changes to 4% if the sales agent
attains a certain quarterly sales goal. In this sense, an override is a incentive for a sales
agent to reach his or her goal. However, for business math purposes, commissions grated
to sales agents, whether they reach their goal or not will be commission, and override will
apply to commissions given to marketing managers or product managers for the sales of
people under them.
If a sales agent earns a basic monthly salary of, 10 000.00 and is paid a 3%
commission on all his or her sales for the month, he or she will have a gross earnings of
basic salary plus commission. If he or she sold 30 000.00 for the month, her gross earnings
and commission will be:
Gross Earnings = Basic Salary + Commission

10 000 + 3% x 30 000
= 10 000 + 900
= 10 900
Plain Commission
Most sales agents earn commissions only. They are not paid any salary. Therefore,
they exert their best effort to increase their sales because the more they sell, the more
they earn. Computation of the commission makes use of the basic formula we
learned, P = BR. The commission is the percentage (P), the sales is the base (B), and
the commission rate is the rate (R).
Examples:
1. Carmen Yambao is a sales agent for the High Ace Realty. She is
paid based on commission only. She is given 2% commission on her
sales. For the current month, her sales a 1 035 000.00. Her
commission (which is also her gross earnings) would be:
Commission = 1 035 000 x 2%

= 20 700
Overrides
For people who have people under them doing the sales, overrides are
given by their companies in addition to their basic salary. Product managers
and sales or marketing managers earn overrides. For 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 totals sales is 365 500 with his men able
to sell a totl of 1 548 263 for the month.
Given: Annual salary = 126 000

His sales = 365 500
His men’s sales = 1 548 263
His commission = 5% of his sales
His override = ½% of his men’s sales
Find: Gross earnings of M. Coronilia
Solution:
Commission: = 5% x his own sales
= 5% x 365 500
Transportation Allowance and Representation Allowance
In certain cases, managers, and even salesperson are given transportation allowance
and/or representation allowance. Just remember that any allowance given a person is in
addition to the basic salary, commission, and override the he or she is entitled to. Let us take
the following example:
Emmanuel Joshua is a marketing manager. He earns a basic salary of 12 500.00 per month.
He earns a 3% commission on his own sales and a 1% override on the sales of his men. In
addition, he is granted a transportation/representation allowance of 1 000.00 per month. For the
current month, his men made a total sales of 250 000.00. Emmanuel Joshua made a total sales
of 140 000.00. His gross earnings would be:
Gross earnings = Basic pay + Commission + Override + Allowance

= 12 500 + 3% x 140 000 + 1%x 250 000 + 1 000
= 12 500 + 4 200 + 2 500 + 1 000
= 20 200
Commission on Sales in Installment Basis
What we have so far are commissions on cash basis, that is, for cash sales. If the
sales are on installment basis, companies do not give commission based on
sales. Rather they are given commission based on collection, that is, payment
made by buyers. Assuming a sale of 120 000.00 paid in monthly installments of
10 000.00, the commission is based on the 10 000.00 payment made by the
buyer. Therefore, if the commission paid is, say, 3%, the monthly commission
would be 3% x 10 000 = 300.
Lesson Summary
• Sales agents and brokers are generally paid commissions as incentives for
increasing a firm’s sales. Some of these sales agents or brokers are paid solely
through commission or what is termed as plain commission. Their gross earnings
would be their total commission.
• Other sales agents and brokers are paid basic pay plus commission. Their gross
earnings would be their basic pay plus their commission.
• Marketing and/or product managers are generally paid overrides on the sales of
people under them. For these people, gross earnings will be their basic pay plus
commission plus override.
• In certain cases, managers and salesperson are given transportation allowance
and/or representation allowance. Just remember that any allowance given a
person is in addition to the basic salary, commission, and override that he or she is
entitled to.
• If the sales are on installment basis, companies do not give commission based on
sales. Rather, they are given commission based on collection, that is payment
made by buyers.

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Gross Earnings = Basic Salary + Commission

Commission = 1 035 000 x 2%

Given: Annual salary = 126 000

Gross earnings = Basic pay + Commission + Override + Allowance

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