5.

1 Payroll - Gross Earnings

(Wages and Salaries)
Calculating: P = Gross Earnings (Pay)
P # hours Rate per hour
Overtime Method 1: Premium Method:
P Earnings Overtime premum
# hours Rate per hour
# OT hours 12 Rate per hour

5.1 Gross Earnings

(Wages and Salaries)
Method 2: Overtime earnings using timeand-a-half rate for over 8 hours of work per
day:
time-and-a-half rate = 1 12 Rate per hour
P # hrs Rate # OT hrs OT Rate

5.1 Gross Earnings

(Wages and Salaries)
More definitions:
Double time: employees earn double time for
holidays
Shift differential: additional amount per hour
paid to employees to work undesirable shifts
Split-shift premiums: employee is paid a
premium for splitting hours to cover busy
periods.

5.1 Gross Earnings

(Wages and Salaries)
Find equivalent earnings for different pay
periods:
Common Pay Periods
Monthly

12 paychecks/year

Semimonthly

24 paychecks/year

Biweekly

26 paychecks/year

Weekly

52 paychecks/year

5.2 Payroll - Gross Earnings

(Commission)
Gross earnings (P) =
Commission Rate (R) Sales (B)
Variable commission rate
Sales
Up to $10,000
$10,001-$20,000
$20,001 and up

Rate
6%
8%
9%

5.2 Gross Earnings

(Commission)
Salary plus commission:
Gross earnings (P) =
Fixed earnings + Commission Rate
Drawing account - a loan against future
commissions. The salesperson receives
money in advance and pays a monthly fee.
Gross earnings (P) = Earnings - Draw

5.2 Gross Earnings

(Commission)
Quota bonus system:
quota is a minimum amount of sales
expected from the employee
Gross earnings (P) =
Commission Rate (Sales Quota)

5.2 Gross Earnings

(Commission)
Finding gross earnings with commission
and override
Override: Payment to supervisor for sales
by the supervisors staff calculated like a
commission
Gross earnings (P) =
Salary + Commission + Override

5.3 Gross Earnings

(Piecework)
Piecework rate: pays an employee so much
per item produced:
Gross earnings (P) =
Number of items Pay per item

5.3 Payroll - Gross Earnings

(Piecework)
Using differential piecework: pay rate
increases once a quota is reached
example:
Sales
1-100 units
101-150
151 or more units

Rate
$2.10 each
$2.25 each
$2.40 each

5.3 Gross Earnings

(Piecework)
Chargebacks: To discourage mistakes, many
companies require the employee to share
the cost of a spoiled item. These penalties
are called chargebacks
Gross earnings (P) = Piecework earnings
(spoiled items chargeback rate)

5.3 Gross Earnings

(Piecework)
Guaranteed hourly wage: Often this is the
minimum wage. When piecework earnings dip
below the guaranteed hourly wage, this wage is
used.
Overtime earnings: Overtime piecework is usually
paid at 1 times the regular piecework rate.

5.4 Payroll - Social Security,

Medicare, and Other Taxes
FICA Federal Insurance Contributions Act
(FICA) tax is the tax that pays for social security.
FICA = 6.2% of earnings with a maximum
earnings subject to this tax
Medicare tax that pays for medicare
Medicare tax = 1.45% with no maximum
earnings subject to this tax
Self-employed FICA = 2 6.2% = 12.4%
medicare tax = 2 1.45% = 2.9%

5.4 Social Security, Medicare,

and Other Taxes
Example: finding FICA and medicare tax for a
self-employed worker.
A self-employed worker makes $44,480 per year.
Find the FICA and medicare tax.
FICA = $44,480 12.4% = $44,480 0.124
= $5515.52
medicare
tax
= $44,480 2.9% = $44,480 0.029
= $1289.92

5.4 Social Security, Medicare,

and Other Taxes
State disability insurance varies from state
to state. A typical program deducts 1% of
the first $31,800 earned

5.5 Payroll - Income Tax

Withholding
Form W-4 for withholding is completed at
time of employment. The questions
determine your number of allowances.
There are 2 ways to determine withholding:
wage bracket method and percentage
method.

5.5 Income Tax Withholding

Wage bracket method use tables in book.

There are different tables for weekly/monthly
income and also for single/married persons.
Example: J. Koehler is married, claims 1 withholding
allowance and makes $510/week
1. Look at the weekly payroll for married persons table.
2. Get rate for $510/week under column for 1
exemption withholding is $30 (8th edition table)

5.5 Income Tax Withholding

Percentage method: use percentage method tables

Example: E. Owens is single claiming one exemption
and earns $2500/month. Find his withholding using the
percentage method.
1. Get amount per allowance from first table: $275 for
monthly
2. calculate: $2500 - (1 allowance $275) = $2225
3. Get rate from monthly table: 15%
4. Withholding = $61.20 + 15% ($2225 - $833)
= $270.00

5.5 Income Tax Withholding

State withholding = tax rate income

6.1 Taxes - Sales Tax

Sales tax (part) = amount of sale sales tax rate
P=BR
State sales tax rates are in table 6.2 by state
Example: A customer purchases several pizzas for
$49.95. Sales tax in the state is 5%. Find the sales
tax and the total amount collected from the
customer. P BR $49.95 5%
$49.95 .05 $2.50
total sales $49.95 $2.50 $52.45

6.1 Sales Tax

If you know any 2 of 3 values from P = B R,
you can compute the third value.
Example: Sales tax on a lawn mower is $16.14. If
the sales tax rate is 6%, find the price of the
mower.
P BR
$16.14 B .06
$16.14
B
$269
.06

6.1 Sales Tax

Excise tax: for gasoline, tires, luxury cars, and
some services. It is either a percent of the price or
a fixed amount.
Example: For a sale of $125 with a sales tax rate
of 5% and an excise tax rate of 8%, find the sales
tax, excise tax and total price.
sales tax .05 $125 $6.25
excise tax .08 $125 $10.00
total price $125 $6.25 $10 $141.25

6.2 Taxes - Property Tax

Fair market value reasonable price for property.
Assessed valuation fair market value assessment rate

Example: Given a fair market value of $120,000 and a

rate of assessment of 30% find the assessed valuation.

Assessed valuation $120,000 .30

$36,000

6.2 Property Tax

Agency responsible for levying tax needs to
calculate annual property tax rate
total amount needed
tax rate
total assessed value
Example: If total tax needed is $10,000,000 and total
assessed value is $250,000,000 what is the tax rate?

$10,000,000
tax rate
.04 4%
$250,000,000

6.2 Property Tax

Express 4% in Dollars per $100.

4
x
$400

x
$4
100 $100
100

Express 4% in Dollars per $1000.

4
x
$4000

x
$40
100 $1000
100

Mills one mill = .1 cent per $ = .001 dollar per $

Express 4% in mills.
4
.001x
$4

x
40 mills
100
$1
.1

6.2 Property Tax

Calculating property tax:
P RB
tax = tax rate assessed valuation
Example: Given an assessed valuation of $30,000
and a tax rate of 11 mills find the property tax.

P 11 .001 $30,000 $330

6.3 Taxes - Personal Income Tax

Ways to do your income tax

1. Fill out the forms yourself obtain from the
library, bank, or government office
2. Pay a professional tax preparer
3. Use a software package (e.g. Turbotax or
Taxcut)
4. Use the web for free similar to a software
package except you have to do everything in
one session (cant save your work for later)

6.3 Personal Income Tax

Doing your income tax:

1.

Adjusted gross income

= wages + interest + other income IRA contributions
2. Find the taxable income
= AGI deduction (standard or itemized)
personal exemption(s) $3200
3. Find the tax from tax rate schedule
4. If tax is lower.refund = withheld tax
If tax is higher.tax due = tax withheld

6.3 Personal Income Tax

Example: K. Chandler has job income of $22,000,
interest of $300, misc. income of $200, dividend
income of $50 and adjustments to income of
$1000. What is his adjusted gross income?

AGI $22,000 $300 $200 $50 $1000

$21,550

6.3 Personal Income Tax

Example: The Cooks are married and they have 2
exemptions. They have adjusted gross income of $70,000
and total itemized deductions of $12,000. What is their
taxable income and how much tax is owed?
$12,000 > standard deduction of $10,000 (pg . 239) so
itemized deductions are used.

taxable income $70,000 $12,000 2 $3200

$51,600
tax $1,460 15%($51,600 $14,600)
$7,010

6.3 Personal Income Tax

Example: R. Jones is single and has taxable income of

$32,000 and federal income tax withheld of $100 weekly.

Determine the amount of his refund or tax due.

total withheld 52 $100 $5200

tax $4090 25%($32,000 $29,700)
$4665
refund $5200 $4665 $535

8.1 Buying - Invoices & Trade Discounts

manufacturer wholesaler retailer
Invoice a printed record of a (business) purchase
or sale. Basic format:
Quantity

Description

Unit Price

Extension
Total

30

Screwdriver

$2

$60

50

Hammer

$3

$150

20

Saw

$1.50

$30

Invoice Total

$240

Shipping/Insurance

$30

Total Amount Due

$270

8.1 Invoices and Trade Discounts

Trade Discount Example: The list price of a lawn
mower is $350 and the trade discount is 15%. Find
the net cost.

trade discount 15%($350) $52.50

net cost $350 $52.50 $297.50

8.1 Invoices and Trade Discounts

Series or chain discount: two or more discounts
are combined
Example: Oak hardware is offered a series
discount of 20/10 on a cordless drill with a list
price of $150. Find the net cost after the series
discount.
First discount = 20% $150 = 0.2 $150 = $30
Subtract discount: $150 - $30 = $120
2nd discount = 10% $120 = 0.1 $120 = $12
Net cost: $120 - $12 = $108

8.1 Invoices and Trade Discounts

Using complements to solve series discounts:
Example: Oak hardware is offered a series
discount of 20/10 on a cordless drill with a list
price of $150. Find the net cost after the series
discount.
For a series discount of 20/10, the complements of
20% and 10% are .8 and .9. Multiplying the
complements gives .8 .9 = .72
Net cost: 0.72 $150 = $108

8.2 Buying - Single Discount Equivalents

A single discount equivalent:
Given a series discount, the single discount
equivalent is one discount that yields the same net
cost as the series of discounts.
To get the single discount equivalent, multiply the
complements of all the discounts together and
subtract your answer from 1.

8.2 Buying - Single Discount Equivalents

Finding a single discount equivalent:
Example: If Air Clean Manufacturing offered a
20/10 discount to all wholesale accounts on all
heater filters, what is the single discount equivalent?
For a series discount of 20/10, the complements of
20% and 10% are .8 and .9. Multiplying the
complements gives .8 .9 = .72
Subtract this net cost equivalent from 1:
1.00 - .72 = 0.28 = 28% (single discount equivalent)

8.2 Single Discount Equivalents

Finding the net cost using complements:
Example: The list price of an oak entertainment
center is $970. Find the net price if trade discounts
of 20/15/27 are offered.
Net cost = List price complements of individual
discounts
(1 - .20 = .8, 1 - .15 = .85, 1 - .275 = .725)
Net cost = $970 .8 .85 .725
= $478.21

8.2 Single Discount Equivalents

Solving for list price:
Example: Find the list price of a handmade rug from
Pakistan that has a net cost of $544 after trade
discounts of 20/20.
Net cost = List price complements of individual
discounts
(1 - .20 = .8)
$544 = List price .8 .8 = .64 List price
List price = $544 .64 = $850

8.2 Single Discount Equivalents

Finding the trade discount :
Example: The list price of a compact disc player is
$550. If the wholesaler offers the system at a net cost
of $341, find the single trade discount rate being
offered.
Net cost = List price complement of discount
$341 = $550 complement of discount
Complement of discount = $341 $550 = .62
discount = 1 - .62 = .38 = 38%

8.2 Single Discount Equivalents

Matching a competitors price:
Example: S and B distributors offered a 20% trade
discount on small compressors list-priced at $450.
Find the trade discount that must be added to match a
competitors price of $342.
Let x = complement of new discount
Net cost = List price complement of discounts
$342 = $450 .8 x = $360 x
x = $342 $360 = .95
new discount = 1 - .95 = .05 = 5%
so S and B must offer a 20/5 series discount

8.3 Buying - Discounts:

Ordinary Dating Method
Cash discount
different conventions from trade discount
incentives for timely payment

net cost list price - trade discount - cash discount

Ordinary dating method

example: 2/10, net/30
2: rate of discount (2%)
10: 2% discount is offered for 10 days
net/30: 30 days for no discount, late charge applied
after 30 days

8.3 Discounts: Ordinary Dating Method

Finding cash discount dates:
A Hershey Chocolate invoice is dated January
2 and offers terms of 2/10, net 30.
(a) find the last date for the 2% discount
last date for discount = Jan 12 (add 10 to 2)
(b) find the net payment date
last date for net payment is 30 days past Jan 2,
since there are 31 days in January the date is
February 1

8.3 Discounts: Ordinary Dating Method

Finding the amount due on an invoice:
An invoice for $840 is dated July 1 with terms
of 2/10, n/30. If it is paid on July 8 and shipping
charges are $18.70, find the amount due.
Payment was 7 days after invoice so the cash
discount applies:
cash discount .02 $840 $16.80
amount due $840 $16.80 $18.70
$841.90

8.3 Discounts: Ordinary Dating Method

Using postdating as of for cash discounts:
Seller uses a date later than the invoice date as
the start date for the cash discount.
Example: An invoice is dated October 21 as of
November 1 with terms of 3/15, net/30. Find
the last date on which the cash discount may
be taken.
Last date for discount = November 16 (1+15)

8.3 Discounts: Ordinary Dating Method

Find the amount due when goods are returned:
An invoice for $380 is dated March 9, and offers
terms of 4/10, net/30. If $75 of goods are
returned and the invoice is paid on March 17,
what amount is due?

The invoice is paid 8 days after its date (17 9 =

8) so the cash discount applies.
$380 - $75 = $305 (goods retained)
cash discount = .04 $305 = $12.20
amount due = $305 - $12.20 = $292.80

8.4 Buying - Cash Discounts: Dating Methods

Other Dating Methods:
Method

Example

Conditions for discount

End Of Month

3/10 EOM or
3/10 prox

payment is made within 10

days of end of month
Add a month if invoice
date is 26th or later

Receipt Of Goods

2/10 ROG

payment is made within 10

days from receipt of goods

Extra dating

2/10-50 extra

payment is made within

(10 + 50) or 60 days from
the date of the invoice

Note: When the net payment date is not given : the net
payment date defaults to 20 days past the last discount date

8.4 Cash Discounts: Other Dating Methods

Finding credit for partial payment
An invoice for $1140, dated March 8, offers terms
of 2/10 proximo. A partial payment of $450 is made
on April 5. Find (a) the amount credited for the
partial payment, (b) the balance due on the invoice,
and (c) the cash discount earned.
(a) 100% - 2% = 98% = .98
Amount paid = .98 credit given
so credit = $450 .98 = $459.18
(b) balance due = $1140 - $459.18 = $680.82
(c) cash discount = $459.18 - $450 = $9.18