Commission Calculations, Types & Agent Remuneration
1. Commercial Meaning of Commission
In mercantile commerce, a principal appoints agents to market and sell merchandise. Commission represents the fee, percentage, or allowance paid to the agent for services rendered in negotiating or executing transactions:
Commission = Total Sales Value × (Rate of Commission / 100)
2. Three Specialized Types of Commission
Taxonomy of Mercantile Commission
1. Ordinary Commission
Standard baseline percentage allowed on total sales achieved by the agent. The agent is not responsible if credit customers fail to pay.
2. Del Credere Commission
An extra commission paid to the agent in consideration of which he guarantees payment from buyers, indemnifying the principal against bad debts.
3. Overriding Commission
Incentive commission paid to senior agents or distributors for exceeding a pre-agreed sales target, promoting new product lines, or commanding premium selling prices.
3. Practical Business Calculation Problem
Question: A commercial manufacturing company pays its sales agent a basic salary of ₹15,000 per month, an ordinary commission of 5% on total sales, and an overriding bonus commission of 2.5% on sales exceeding ₹2,00,000 in a month. In Diwali month, the agent generates gross sales of ₹3,60,000. Calculate the total monthly earnings of the agent.
Step-by-Step Solution:
- Basic Salary Component:
- Fixed Monthly Salary = ₹15,000
- Calculate Ordinary Commission (5% on total sales of ₹3,60,000):
- Ordinary Commission =
(5 / 100) × ₹3,60,000 = ₹18,000
- Ordinary Commission =
- Calculate Overriding Commission (2.5% on excess sales above ₹2,00,000):
- Excess Sales =
₹3,60,000 - ₹2,00,000 = ₹1,60,000 - Overriding Commission =
(2.5 / 100) × ₹1,60,000 = ₹4,000
- Excess Sales =
- Calculate Total Monthly Remuneration:
- Total Earnings = Basic Salary + Ordinary Commission + Overriding Commission
- Total Earnings =
15,000 + 18,000 + 4,000 = ₹37,000 - Conclusion: The agent earns a total of ₹37,000 for the month.