HOSP 1107 (Business Math) Learning Centre

Chapter 1: Averages, Payroll & Taxes

AVERAGES
Arithmetic Average (Mean): The mean of a set of values is found by summing all the numbers
in a set and dividing by the number of items.

=

Example: Kim scored the following marks in her math test: 8, 4, 6, 3 and 10. If all the tests count
equally, what was her average mark for the tests?

Solution: = = = .

Weighted Average: is the average of two or more terms that are not of equal importance (e.g.
items purchased at different prices). To find the weighted term, multiply each term by its
weighting factor and sum them up. Then divide by the number of terms. The formula for
weighted average is:

=

Example: Scott wanted to figure out his average bank balance for the year. For Jan March, his
balance was $4500; Apr May balance was $3600; June Sept: $3900; Oct Dec $4100.
Solution:
Step 1: To get the sum of weighted terms, multiply each balance by the number of months.
(4500 3) + (3600 2) + (3900 4) + (4100 3) = 48600
Step 2: Total number of terms = Total number of months = 12
,
Step 3: =
=

= ,

Practice Problems

1. Five contractors worked 10, 12, 141 3 , 11 and 15 hours respectively. What is the total
cost of labour if the contractors were each paid $15.75 per hour?

2. Complete the following inventory sheet:

Item Quantity Cost per unit Total
A 96 0.89
B 330 16.25
C 144 5.54
D 240 1.54
Total

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3. Several mattress stores in the city carry the same brand of mattress. The number of Comfort
mattresses sold and the price charged by each store are shown below:
Store Quantity Sold Cost per unit sold ($)
A 12 120.99
B 5 135.75
C 6 130.80
D 17 119.50
a. What was the average number of mattresses sold per store?
b. What was the average price per store?
c. What was the average sales revenue per store?
d. What is the average price per mattress?

4. An olive oil company tracks the cost of olive oil production over a six month period. Records
show that for the first 1,540 litres, they paid 48.6/L. For the next 1,720 litres, they paid
42.4/litre. For the last 1,105 litres, they paid 38.5/L. Determine the average cost of olive
oil production per litre for the six-month period in dollars.

Solutions

1. Total hours = 10 + 12 + 141/ 3 + 11 + 15 = 63. 3 hours

Total cost of labour = 63. 3 hours $15.75/hr = $997.50

2. A: $85.44; B: $5,362.50; C: $797.76; D: $369.60; Total: $6,615.30

3. a. Average number mattresses sold per store = (12 + 5 + 6 + 17) 4 = 10

b. Average price per store = ($120.99 + $135.75 + $130.80 + $119.50) 4 = $126.76
c. Average sales revenue per store
= ($120.99 12 + $135.75 5 + $130.80 6 + $119.50 17) 4 = $1236.73
d. Average price per mattress = Total Sales Revenue Total mattresses sold
= $4,946.93 40 = $123.67/mattress

4. Step 1: find the total amount spent on olive oil production.

(1,540L $0.486/L) + (1,720L $0.424/L) + (1,105 L $0.385/L) = $1,903.15
Step 2: divide the total olive oil cost by the total volume of olive oil to find the average cost.
$1,903.15/(1,105 + 1,720 + 1,540L) = $0.44/litre

PAYROLL
Salaries
An employee paid monthly receives 12 paycheques per year.
An employee paid semi-monthly (twice a month) receives 24 paycheques per year.
An employee paid bi-weekly (every two weeks) receives 26 paycheques per year. (Not 24!)
An employee paid weekly receives 52 paycheques per year.
Always calculate the yearly salary, then the weekly salary, and then the hourly salary.

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Example: If Mary earns an annual salary of $30,000 and is paid biweekly, how much is her
paycheque? If Mary were paid semi-monthly, how much would her paycheque be before taxes?
Solution:
$30,000 26 = $1,153.85 [Biweekly paycheques are issued 26 times a
year, so divide Marys salary by 26.]
$30,000 24 = $1,250 [Semimonthly paycheques are issued 24 times a
year, so divide Marys salary by 24.]
Answer: Mary is paid $1,153.85 biweekly, or $1,250 semimonthly.
*Hint, usually to convert from one type of pay period to another (e.g. find bi-weekly pay
when given semi-monthly pay amount) you must first convert to annual salary and
then to the new pay period.
Commission
Many salespeople earn a commission based on a percent of their net sales, or actual sales.
Net sales are what remains after returns & allowances are deducted from gross sales. An
employee whose entire salary is based on net sales works on straight commission. Those who
receive a guaranteed income in addition to a commission on sales work on a salary-plus-
commission basis. The sales quota is the amount an employee must sell more than in order to
receive a commission. For any sales amount equal to or less than the quota, they receive the
guaranteed salary. The diagram below is drawn to go with the example below.

Commission Commission = rate of commission (sales quota)

Quota 2000 = 0.03 (6,000 2,000)
Sales

$150
salary
0

Example: Ms. Jones receives $150 weekly in salary. Her commission is 3% of net sales above
quota. The sales quota is $2,000. If her weekly net sales were $6000, find her gross earnings.
Solution:
Step 1: Find the amount on which commission is paid.
= $6,000 $2,000 = $4,000
Step 2: Change the rate of 3% to a decimal. Multiply the rate times the base of $4,000.
= 0.03 $4,000 = $120 (commission)
Step 3: Add the commission and salary to find gross earnings.
= $120 + $150 = $270 gross earnings
Wages
Wages are paid on an hourly basis. When an employee works overtime, this means the
employee works more hours than a regular work week and gets paid at a higher rate for those
extra hours. If a question does not specify the overtime rate, assume its time and a half.
Example: Lisa McMillan is paid $7.25 per hour. The regular workweek is 40 hours. If Lisa
worked 46 hours last week, what were her earnings?
Solution:
Step 1: Find the amount earned for 40 hours of work at the regular rate of pay.
= 40 $7.25 = $290
Step 2: Find the overtime earnings by multiplying the number of overtime hours by the regular
rate by 1.5. Round to the nearest cent.
= 6 $7.25 1.5 = $65.25
Step 3: Add the two amounts from step 1 and 2 to find Lisas total gross earnings.
= $290 + $65.25 = $355.25 gross earnings
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Practice Problems

1. T. Baldacci earns an annual salary of $20,493.20 paid biweekly. The regular workweek is 35
hours. (a) What is the regular salary per pay period? (b) What is the hourly rate of pay?
(c) What is the gross pay for a pay period in which the employee worked 12 hours overtime
at time-and-a-half of regular pay?
2. Darnell receives a semi-monthly salary of $1,017.25 and works a regular work week of 30
hours. (a) What is Darnells hourly rate of pay? (b) If Darnells gross earnings in one pay
period were $1,317.73 for how many hours of overtime was he paid at 1.2 times regular pay?
3. Ms. Ferris receives $175 weekly salary and 4% of all sales over $3,800. If she sold $6,000
worth of merchandise, find her gross earnings.
4. During March, Aidan earned a commission of $1,884.04 on gross sales of $21,440. If
returns and allowances were 5% of gross sales, what is his rate of commission based on net
sales?
5. Jean Grey is paid a commission of 7.3% on net sales and is authorized to draw up to $700 a
month. What is the amount due to Jean at the end of a month in which she drew $640, had
gross sales of $15,770, and sales returns of $140?
6. Marco Polo has a guaranteed weekly salary of $536 plus a commission of 8% on sales
over $4,200. (a) What are his gross earnings for the week if sales are $3,975? (b) What are
his gross earnings for the week if his sales are $5180?
7. Vivianne Wells had gross earnings of $801.40 for the week. If she receives a base salary of
$475 on a quota of $4,500 and a commission of 6.8% on sales exceeding the quota, what
were Viviannes sales for the week?

Solutions

1. (a) Paycheque= $20,493.20 26 = $788.20 (b) Hourly pay = $20,493.20 52 weeks/yr

35 hrs/week = $11.26 (c) Overtime pay = $11.26/hr 1.5 12hrs = $202.68
Gross pay = $788.20 + $ 202.68 = $990.88
2. (a) Annual salary = $1017.25 24 = $24,414; Hourly pay = $24,414/yr 1yr/52weeks
1week/30hours = $15.65/hr
(b) $1317.73 $1017.25 = $300.48 (of overtime pay)
$300.48/($18.78/hr) = 16 hours overtime
3. $6,000 $3,800 = $2,200 (amount on which commission is paid)
Gross earnings = $175 + ($2,200 0.04) = $263
4. Gross sales = $21,440; Less: returns = 5% of $21,440 = $1,072
Net sales = $20,368.00
Rate of commission = $1,884.04 $20,368 = 9.25%
5. Net Sales = $15,770 $140 = $15,630
Commission = $15,603 0.073 = $1,140.99
Amount due = $1,140.99 $640 = $500.99
6. (a) $536 (b) $5,180 $4200 = $980 (amount on which commission would be earned)
Commission = $980 0.085 = $83.30
Gross pay = $535 + $83.30 = $619.30
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7. Gross earnings base salary = Commission paid
$810.40 - $475 = $326.40
$326.40/0.068 = $4,800 (amount of sales on which commission was paid)
Total sales = $4,800 + $4,500 = $9,300

TAXES
Goods and Services Tax (GST)
The Goods and Services tax (GST) is 5% in all provinces. GST is collected by businesses on
behalf of the government. At the end of the tax season, a business finds the difference between
how much GST they paid during their operation as a business (purchasing supplies, etc.) and
how much they collected as part of their revenue. If they collected more than they paid, they
owe the government money. If they collected less than they paid, the government owes them a
refund.

Provincial sales tax (PST) - Depending on your textbook edition, these will be different.
As of January 1, 2013, the numbers shown in parentheses are the current rates:
In British Columbia (7%), Saskatchewan (5%), Manitoba (8%) and Quebec (9.975%) the
GST and the PST are calculated separately, and then added to the price.
In New Brunswick (13%), Nova Scotia (15%) and Newfoundland (13%), Ontario (13%) and
PEI (14%), the Harmonized Sales Tax is used (HST) which is a combined GST and the PST
into a single tax.
In Alberta there is no PST, only GST.

Example: (a) Determine the amount of provincial sales tax (PST) on an invoice of items totalling
$560 in Manitoba and (b) the total of the items including tax. The PST rate in Manitoba is 7%.

Solution: (a) In Manitoba, the PST = 7% of $560 = 0.07 560 = $39.20.

(b) $560 + 0.05(560) + 0.07(560) = $560 + $28 + $39.20 = $627.20

Property Tax
In order for cities to pay for their expenses (utilities, etc.), they must generate revenue to cover
those costs. One way to generate revenue is through property taxes. Property tax is a
municipal tax charged on the assessed value of commercial and residential real estate. Note
that the assessed value is not always the same as market value; generally it is lower than the
market value. Mill Rate is a special way of expressing property tax: it is the amount of tax per
$1,000 of assessed value of property.
Mill rate = (Revenue Required / Assessed Value) 1000
Property tax = Mill rate (0.001 Assessed Value)

Example: The town of Vallejo assesses property at market value. How much will the owner of a
house valued at $225,000 owe in taxes if this years mill rate has been set at 19.368?

Solution: Using the formula,

Property Tax = 19.368 (0.001 225,000) = $4357.80

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Practice Problems

1. A local tire repair company in Alberta collected $27,500 in revenue last year, not including
GST. During the year, the company spent $10,780 on parts and supplies, not including GST.
Does the tire repair company owe Canada Revenue GST or will it receive a refund? What is
the amount owed/refunded?
2. A store located in Victoria, B.C., sells a computer for $2,625.00 plus GST and PST. What is
the price paid by the consumer?
3. An Ontario bicycle shop is advertising a save the GST sale. How much would you save
when buying a bicycle with a list price of $1250 during this promotion?
4. Benjamin Button pays a property tax of $2,502.50. In his community the mill rate is 55. What
is the assessed value of Benjamins property, to the nearest dollar?
5. A town has a total residential property assessment of $975,500,000. It is originally estimated
that $45,567,000 must be raised through residential taxation to meet town expenses.
(a) What mill rate (to 2 decimals) must be set to raise $45,567,000 in property taxes?
(b) What is the property tax on a property assessed at $35,000?
(c) If the mill rate increases to 48.76, how much more will the property taxes be on a
property assessed at $35,000?

Solutions

1. Amount of GST collected: $27,500(0.05) = $1,375

Amount of GST paid: $10,780(0.05) = $539
Since the company collected more GST than it paid, it owes Canada Revenue money.
Amount of GST owed to Canada Revenue = $1,375 539 = $836

2. Amount paid in Victoria, B.C. = Retail Price + 5% GST + 7% PST

= $2,625.00 + 0.05(2,625.00) + 0.07(2,625.00) = 2,625.00 + 131.25 + 183.75 = $2,940.00

3. price with GST and PST = $1250 + $1250(0.05) + $1250(0.08) = $1412.50

price with PST only = $1250(1 + 0.08) = $1350
savings: $1412.50 $1350 = $62.50

4. Assessed Value = Property tax (Mill rate 0.001) = $2502.50 (55 0.001)
Assessed Value = $45,500.
5. a. Mill Rate = ($45,567,000 $975,500,000) 1000 = 46.71143004 = 46.71
b. Property Tax = 46.71 (0.001 35,000) = $1634.85
c. Change in mill rate = 48.76 46.71 = 2.05
Additional property tax = 2.05 (0.001 35,000) = $71.75

2014 Vancouver Community College Learning Centre.

Student review only. May not be reproduced for classes. 6