Business Math - Ch. 8 & 9

Series of Markups or Markdowns

*Remember that each markup/markdown is based on the previous selling price.

Salary

A fixed gross amount of pay equally distributed over periodic payments without regard to the number of hours worked.

Federal Income Tax (FIT)

A graduated tax based on gross earnings, marital status, and number of exemptions that is paid by all workers earning over a certain amount in the United States.

Salary Plus Commission

A guaranteed salary plus a commission on sales over a specified amount.

Markdown

A price reduction from the original selling price of merchandise.

Percentage Method

An alternative method to the wage bracket tables used to calculate the amount of an employee's federal income tax withholding. The amount of tax withheld is based on the amount of gross earnings, the marital status of the employee, and the number of withholding allowances claimed.

Withholding Allowances or Deductions

An amount that reduces an employee's taxable income. Employees are allowed one exemption for themselves, one for their spouse if the spouse does not work, and one for each dependent child or elderly parent living with the taxpayer but not working.

Fringe Benefits

Employer-provided benefits and service packages over and above an employee's paycheck, such as pension funds, paid vacations, sick leave, and health insurance.

Federal Insurance Contribution Act (FICA)

Federal legislation enacted in 1937 during the Great Depression to provide retirement funds and hospital insurance for retired and disabled workers. Today FICA is divided into two categories, social security and Medicare.

Deductions or Withholdings

Funds withheld from an employee's paycheck.

Incremental Commission

Greater incentive method of compensation than straight commission whereby higher levels of sales earn increasing rates of commission.

Differential Piecework Plan

Greater incentive method of compensation than straight piecework, where pay per unit increases as output goes up.

Combined Wage Bracket Tables

IRS tables used to determine the combined amount of income tax, social security, and Medicare that must be withheld from an employee's gross earnings each pay period.

Formula for Markdown percent

Markdown percent= Markdown / Original selling price

Formula to determine Original price before a markdown

Original selling price = Sale price / 100% - markdown percent

Straight Piecework Plan

Pay per unit of output regardless of output quantity.

Piecework Rate

Pay rate schedule based on an employee's production output, not hours worked.

Formula to convert perfect markup based on selling price to percent markup based on cost

Percent markup based on cost = Percent markup based on selling price / 100% - Percent markup based on selling price

Formula to convert percent markup based on cost to percent markup based on selling price

Percent markup based on selling price = Percent markup based on cost / 100% + Percent markup based on cost

Commission

Percentage method of compensation primarily used to pay employees who sell a company's goods and services.

Staple goods

Products considered basic and routinely purchased that do not undergo seasonal fluctuations sales, such as food, tools, and furniture.

Perishable goods

Products that have a certain shelf life and then no value at all, such as fruits, vegetables, flowers, and dairy products.

Seasonal goods

Products that undergo seasonal fluctuations in sales, such as fashion apparel and holiday merchandise.

Markdown cancellation

Raising prices back to the original selling prices after a sale is over.

Formula for calculating selling price when cost and percent markup based on selling price are known

Selling price (100%) = Cost (a%) + Markup (b%) Selling price = Cost / 100% - Percent markup on selling price

Formula for calculating selling price when cost and percent markup based on cost are known

Selling price = Cost(100% + Percent markup based on cost)

Formula to determine the Selling price of Perishable goods

Selling price of perishables = Total expected selling price / Total quantity - Anticipated spoilage

Net Pay or Net Earnings

The actual amount of the employee's paycheck after all payroll deductions have been withheld.

Wage Base

The amount of earnings up to which an employee must pay social security tax.

retailing equation

The selling price of an item is equal to the cost plus the markup. Selling price = cost + markup

Gross Pay or Gross Earnings

Total amount of earnings due an employee for work performed before payroll deductions are withheld.

Markup based on cost

When cost is 100% and the markup is expressed as a percent of that cost. --Base = Portion / Rate-- Percent markup based on cost (rate) = Markup (portion) / cost (base)

Markup based on selling price

When selling price is 100% and the markup is expressed as a percent of that selling. --Rate = Portion / Base Percent markup based on selling price (rate) = Markup (portion) / Selling price (base)

Straight Commission

Commission based on a specified percentage of the sales volume attained by an employee.

Drawing Account or Drawing Against Commission

Commission paid in advance of sales and later deducted from the commission earned.

Formula for calculating cost when selling price and percent markup based on cost are known

Cost = Selling price / 100% + Percent markup on cost

Formula for calculating cost when selling price and percent markup based on selling price are known

Cost = Selling price(100% - Percent markup on selling price)

Mandatory Deductions

Deductions withheld from an employee's paycheck by law: social security, Medicare, and federal income tax.

Voluntary Deductions

Deductions withheld from an employee's paycheck by request of the employee, such as insurance premiums, dues, loan payments, and charitable contributions.