Business and Finance Basics 1
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School
Penn Foster College**We aren't endorsed by this school
Course
VET 130
Subject
Mathematics
Date
Jan 12, 2025
Pages
25
Uploaded by RoyCarrie
- Further develop your math skills by applying what you’ve learned - Learn how to take information and figure out solutions to problems - Learn how to solve problems like payroll and calculate various types of discounts as well as simple interest - Also learn how to use the time value of money. Figure notes so that you’ll know what to pay when you borrow money, and calculate the correct selling prices so that you can make a profit Objectives:- List some basic guidelines involved in calculating single trades, series trades, cash, and discounts - Describe the processes involved in determining the markup adn the markdown pricing concept - State the calculations involving employees’ gross earning, payroll deductions, and payroll expenses - Explain the various methods of simple interest calculations: - Define promissory notes and discounting List Some Basic Guidelines Involved in Calculating Single Trades, Series Trades, Cash, and Discounts:- Discounts:- LU 7-1: Trade Discounts - Single and Chain (including of Feight) - Calculate single trade discounts with formulas and complements - Explain the freight terms FOB shipping and FOB destination - Find list price when net prices and trade discount rate are known - Calculate chain discounts with the net price equivalent rate and single equivalent discount rate - LU 7-2: Cash Discounts, Credit Terms, and Partial Payments- List and explain typical discount periods and credit periods that a business may offer - Calculate outstanding balance of particle payments - Trade Discount Amount Formula:- Trade discount Amount = List price x Trade discount rate - $2,887.50 = $11,550 x 25% - Net Price Formula:- Net price = List price - Trade discount amount - $8,661.50 = $11,550 - $2,887.50 - FOB shipping pointmeans free on board at shipping point; that is, the buyer pays for the freight cost of getting the goods to the place of business - FOB destinationmeans the seller pays the freight cost until it reaches the buyer’s place of business - Single Trade Discount
- Calculating Net Price Using Complement of Trade Discount Rate: - Step 1: To find the complement, subtract the single discount rate from 100% - Step 2: Multiply the list price times the complement (from Step 1)- Calculating List Price When Net Price and Trade Discount Rate Are Known- List Price = Net Price / Complement of trade discount rate
- Chain Discounts- Calculating Net Price Using Net Price Equivalent Rate - Step 1:Subtract each chain discount rate from 100% (find the complement) and convert each percent to a decimal - Step 2:Multiply the decimals. Do not round off decimals, since this number is the next price equivalent rate - Step 3: Multiply the list price times the net price equivalent rate (Step 2) - Calculating Trabe Discount Amount Using Single Equivalent Discount Rate - Step 1: Subtract the net price from 1. This is the single equivalent discount rate - Step 2:Multiply the list price times the single equivalent discount rate. This is the trade discount amount
- Cash Discounts - Common Credit Terms Offered by Sellers
- Partial Payments - Calculating Partial Payments and Outstanding Balance - Step 1: Calculate the complement of a discount rate - Step 2:Divide partial payments by the complement of a discount rate (Step 1). This gives the amount credited - Step 3:Subtract Step 2 from the total owed, This is the outstanding balance
Describe the Processes Involved in Determining the Markup adn the Markdown Pricing Concept:- Markups and Markdowns:- If you’re asked for the percent of markup based ont he selling price, make sure your answer is a percent, not a decimal. To change the decimal to a percent, move the decimal two places to the right - When calculating cost, after adding 100% to the percent markup on cost, change your answer to a decimal by moving the decimal two places to the left. Then, divide it into your selling price - Formulas can be transposed based on the factor that you’re trying to find. For example, look at the following equation: Selling Price = Cost + Markup - In this equation to solve for cost, subtract markup from both side of the equation as follows: Selling Price - Markup = Cost + Markup - Markup Selling Price - markup = Cost Or Cost = Selling Price - Markup - Learning Unit Objectives: - LU 8-1: Markups Based on Cost (100%) - Calculate dollar markup and percent markup on cost - Calculate selling price when you know the cost and percent markup on cost - Calculate cost when you know the selling price and percent markup on cost - Lu 8-2: Markups Based on Selling Price (100%) - Calculate dollar markup and percent markup on selling price - Calculate selling price when cost and percent markup on selling price are known - Calculate cost when selling price and percent markup on selling price are known - Convert from percent markup on cost to percent markup on selling price and vice versa - LU 8-3: Markdowns and Perishables - Calculate markdowns; compare markdowns and markups - Price perishable items to cover spoilage loss - LU 8-4: Breakeven Analysis - Calculate contribution margin - Calculate breakeven point - Selling price- The price retailers charge consumers. The total selling price of all of the goods sold by the a retailer (like Gap) represents the retailer’s total sales - Cost - The price retailers pay to manufacturer or supplier to bring the goods into the store
- Markup, margin, or gross profit- These three terms refer to the difference between the cost of bringing the goods into the store and the selling price of the goods - Operating expenses or overhead- The regular expenses of doing business such as wages, rent, utilities, insurance, and advertising - Net profitor net income- The profit remaining after subtracting the cost of bringing the goods into the store and the operating expenses from the sale of the goods (including any returns or adjustments). In LU 8-4 we will take a closer look at the point at which costs and expenses are covered. This is called the breakeven point - Basic Selling Formula - Selling Price (S) = Cost (C) + Markup (M) : $23 = $18 + $5 - Markup Expressed as a Percent Markup on Cost- Cost + Markup = Selling price - Cost is 100% - the base. Dollar markup is the portion, and percent markup on cost is the rate - Dollar markup is divided by the cost to get the markup percentage- Calculating Selling Price When You Cost and Percent Markup on Cost - S = C + M
- Calculating Cost When You Know Selling Price and Percent Markup on Cost - Markup Expressed as percent Markup on Selling Price - Selling price is 100% - the base. Dollar markup is the portion, and percent markup on selling price is the rate - Calculating Dollar Markup and Percent markup on the Selling Price - R = P/B : Where rate (the percent markup on selling price) is found by dividing the portion (dollar markup) by the base (selling price)
- Calculating Selling Price When You Know Cost and Percent Markup on Selling Price - M = S - C
- Calculating Cost When You Know Selling Price and Percent Markup on Selling Price - S = C + M - Formula for Converting Percent Markup on Cost to Percent Markup on Selling Price - To convert percent markup on cost to percent markup on selling price - Percent Markup on Cost / 1 + Percent Markup on Cost
- Formula for Converting Percent Markup on Selling Price to Percent Markup on Cost - To convert percent markup on selling price to percent markup on cost - Percent Markup on Selling Price / 1 - Percent Markup on Selling Price - Markdowns - They are reductions from the original selling price caused by seasonal changes, special promotions, style changes, and so on - Markdown Percent Formula - Markdown Percent = Dollar Markdown / Selling Price (original) - Pricing Perishable Items - Selling Price of Perishables Formula - Selling Price of Perishables = Total Dollar Sales / Number of Units Produced - Spoilage
- Fixed Costs (FC)- Costs that do not change with increases or decreases in sales; they include payments for insurance, a business license, rent, a lease, utilities, labor, and so on - Variable Costs (VC)- Costs that do change in response to change in the volume of sales; they include payments for material, some labor, and so on - Selling Price (S) - In this unit we focus on manufacturers and supplies who produce goods to sell in units - Contribution Margin (CM)- The difference between selling price (S) and the variable costs (VC). This difference goes first to pay off total fixed cost (FC); when they are covered, profits (or losses) start to accumulate - Breakeven Point (BE)- The point at which the seller has covered all expenses and costs of a unit and has not made any profit or suffered any less. Every unit sold after the breakeven point (BE) will bring some profit or cause a loss - Calculating a Contribution Margin (CM) - Formula - Contribution margin (CM) = Selling Price (S) - Variable Cost (VC)- Calculating Breakeven Point (BE) - Formula- Breakeven point (BE) = Fixed Costs (FC) / Contribution Margin (CM)
State the Calculations Involving Employees’ Gross Earning, Payroll Deductions, and Payroll Expenses:- Payroll:- Your gross pay is the amount you earn before deductions. Your net playis what’s left after the deductions are taken out - If you get paid time-and-a-half, multiply your hourly rate by 1.5 to calculate your overtime pay. To calculate double-time pay, multiply your hourly rate by 2, and calculate triple-time pay, multiply your hourly rate by 3 - Straight pieceworkpays a flat rate per unit no matter how many units you can produce. Differential pieceworkpays you more as you produce more units - You aren’t responsible for paying Social Security tax on any amount over $106,800 (Note that this amount changes almost every year) - As an employee, you must complete a W-4 form, which is used by your employer to determine the amount of income tax that will be withheld from your paycheck - You can determine federal income tax withholding by using the wage bracket tableor the percentage method- An employer is responsible for matching all FICA tax payments for each employee - If you’re self-employed, you can estimate your earnings for the year and pay your federal income tax on a quarterly basis - Learning Unit Objectives: - LU 9-1: Calculating Various Types of Employees’ Gross Pay- Define, compare, and contrast weekly, biweekly, semimonthly, and monthly pay periods - Calculate gross play with overtime on the basis of time - Calculate gross pay for piecework, differential pay schedule, straight commission with draw, variable commission scale, and salary plus commission - LU 9-2: Computing Payroll Deductions for Employee’s Pay: Employers’ Responsibilities - Prepare and explain the parts of a payroll register - Explain and calculate federal and state unemployment taxes - Hourly Rate of Pay; Calculation of Overtime - Gross pay = Hours employee worked x Rate per hour - Hourly overtime pay rate = Regular hourly pay rate x 1.5
- Gross pay = Earnings for 40 hours + Earning at time-and-a-half rate (1.5)- Straight Piece Rate Pay - Gross pay = Number of units produced x Rate per unit- Differential Pay Schedule - The companies determine the rate these employees make by the amount of units the employees produce at different levels of production - Straight Commission with Draw - To determine the pay of salespersons
- Variable Commission Scale - Uses different commission rates for different levels of net sales - Salary Plus Commission - Computing Payroll Deductions for Employees- This is called a payroll register
2,900.00 Gross - 43.40 Social Security - 42.05 Medicare - 368.30 FIT - 174.00 SIT - 100.00 Health Insurance = 2,172.25 Net Pay - Employers’ Responsibilities - Federal Unemployment Tax Act (FUTA)participates in a joint federal-state unemployment program to help unemployed workers- State Unemployment Tax Act (SUTA)in many states is 5.4% on the first $7,000 the employer pays an employeeExplain the Various Methods of Simple Interest Calculations:- Simple interest:- I = PRT - I stands for interest
- P stands for the amount of principal - R stands for the interest rate - T stands for the time period of the loan - Some loans are given for a time period calculated in days. Two methods are used to calculate simple interest on a loan that’s given in terms of days: - The Exact interest methoduses the number of days of the loan divided by 365 - The ordinary interest methoduses the number of days of the loan divided by 360 - Learning Unit Objectives - LU 10-1; Calculation of SImple interest and Maturity Value- Calculation simple interest and maturity value for months and years - Calculate simple interest and maturity value by (a)exact interest and (b)ordinary interest - Lu 10-2: FInding Unkown in Simple Interest Formula - Using the interest formula, calculate the unknown when the other two (principal, rate, or time) are given - Lu 10-3: U.S Rule - Making Partial Note Payments before Due Date- List the steps to complete the U.S Rule as well as calculate proper interest credits - Maturity Value (MV)- Maturity Value (MV) = Principle (P) + Interest (I) - Simple Interest Formula - Simple Interest (I) = Principal (P) x Rate (R) x Time (T)
- Two Methods for Calculating Simple Interest and Maturity Value- Method 1: Exact Interest (365)- Time = Exact number of days / 365 - Method 2: Ordinary Interest (360)- Time = Exact number of days / 360 - Finding the Principal - Calculate - Principal = Interest / Rate x Time
- Finding the Rate- Calculate Rate of Interest- Rate = Interest / Principal x Time - Finding the Time - Calculate- Time (in years) = Interest / Principle x Rate - U.S Rule- Allows the borrower to receive proper interest credits - States that any partial loan payment first covers any interest that has built up
Define Promissory Notes and Discounting:- Promissory Notes:- When you’re using the formula for simple interest, the rate should be expressed as a decimal. Remember; to change a percent to a decimal, move the decimal two places to the left - Time should be expressed in terms of a year when you’re calculating simple interest. When you’re calculating the interest on a loan that’s a given for a specific number of days, to calculate the exact interest, you must divide by 365; to calculate the ordinary interest, you must divide by 360 - A Bank discountis to a promissory note as interest is to a loan. The face valueon a promissory note is the same as the principal on a loan, and the discount rateon the promissory note is the same as the rate on a loan. The formula I = PRT is the same as bank discount - face value x discount rate x time- Learning Unit Objectives - Lu 11-1: Structure of Promissory Notes; the simple Discount Note - Difference between interest-bearing and non-interest-bearing notes - Calculate bank discount and proceeds for simple discount notes - Calculate and compare the interest, maturity value, proceeds, and effective rate of a simple interest note with a simple discount note - Explain and calculate the effective rate for a Treasury bill - LU 11-2: Discounting an Interest-Bearing Note Before Maturity - Calculate the maturity value, bank discount, and proceeds of discounting an interest0bearing note before maturity - Identify and complete the four steps of the discounting process - Structure of Promissory Notes - Interest bearingis a note that must state the rate of interest - Non-interest-bearing is the same face value, so no interest is added on - Interest-bearing note - Interest - Face value (principal) x Rate x Time - Maturity Value = Face value (principal) + Interest - Simple Discount Note
- A Treaury Billis a loan to the federal government for 28 days (4 weeks), 91 days (123 weeks), or 1 year
- Discounting an Interest-Bearing Notes Before Maturity - Discounting a Note - Step 1: Calculate the interest and maturity value of the original interest rate - Step 2: Calculate the discount period (time the bank holds note) - Step 3: Calculate the bank discount - Step 4: Calculate the proceeds