Topic 13: Business Arithmetic

By the end of this topic, you will be able to:

• describe and calculate profits (include all expenses incurred), loss, commission, interest, insurance and discount
• express profit and loss as a percentage
• solve simple interest problems

Keywords

• commission
• cost price
• discount
• expenses
• insurance
• interest
• Loss
• percentage
• profit
• selling price
• simple interest
• Business

Introduction

In business, manufacturers sell their products to wholesalers, wholesalers sell to retailers and retailers also sell to the final consumers. A consumer can either buy from a manufacturer, agent, wholesaler or a retailer. In daily life, you can buy products either for consumption or for resale. In this topic therefore, you will learn business arithmetic and how it helps you solve related daily life challenges.

Profit, Loss, Commission, Interest, Insurance and Discount

Profit and Loss

Activity 13.1 Calculating profit and Loss (work in groups)

What you need: paper cutouts, notebooks, pen

What to do:

Make 5 paper cutouts and label them as A, B, C, D and E. Assign a price to each cutout and record the prices as selling price in your notebook.

State the cutout you have made a:

a) profit?

b) loss?

c) Give a reason to support your answer.

d) Present your findings to the whole class.

Example 1

Oswin bought mineral water at UGX 200,000 and got 10% profit. Calculate the profit he made. Find his selling price.

Example 2

Exercise 13.

1. Joan bought a car at UGX 10,000,000 and sold it at a profit of 10% after two months.

a) Find the profit earned by Joan.

b) Calculate the selling price.

2. James made a profit of 20% ter selling a shoe at UGX 200,000. Find the cost price of the shoe.

3. Shamim bought land at UGX 7,700,000 and sold it at a loss of 3%. Find;

a) the loss made by Shamim.

b) the selling price.

4. Allan has a retail shop. He bought different items and sold them at different prices as shown below.

Commission Mutyabule earns a commission on every Newspaper he sells. He moves around looking for customers to buy the papers. On a good day he earns more than the permanent staff. In your own understanding, what is commission? In this section, you will learn how to describe and calculate commission.

Example 1 (Discuss in groups)

Jordan is in charge of giving loans and earns a commission of 1% on each loan given out. Last month he gave out loans worth UGX 300,000,000 to different members of a SACCO. Calculate the commission earned by Jordan.

Example 2

Naome a Newspaper vendor earns a commission of 10% on every newspaper sold. She sells each newspaper for New Vision and Monitor at UGX 2,000, Bukedde at UGX 1,000 and Red pepper at UGX 2,500. On a good day, she sells 50 copies of New vision and Monitor, 40 copies of Bukedde and 15 copies of Red paper. a) Find the commission earned by Naome on a good day from all sales. b) Find the total commission she earns weekly, monthly and annually (assume a month has 4 weeks and all are good days).

Exercise 13.2

1. Justine sells airtime and earns a commission of 2%. If she sold airtime worth 5,000,000 last week, calculate the commission earned.

2. The table below shows the money in loans given out by different employees of a certain bank last month. A commission of 1% shall be paid to them on Loans given out

Calculate the commission paid to every employee that month.

3. A cement company pays its agents a commission of 5% on sales, an agent sold products worth UGX 750,000,000 last month. If the sales are maintained for every month for a year, how much commission did the agent get for the 12 months?

Interest

Have you money ever borrowed money from a friend? What of your parents borrowing from a SACCO or bank? The extra money paid for the borrowed money is what is called interest. It is normally expressed as a percentage.

Activity 13.2 How to calculate interest (work in groups)

What you need: a pen, notebook.

What to do:

Read the story about Ecweru and discuss the following questions. Ecweru a wheat farmer wants to add value to his wheat by processing and packing it from his farm. He has little money to purchase the equipment. He acquired a loan of UGX 50,000,000 for one year from the bank at an interest rate of 25% per year.

a) Calculate the interest that he will pay.

b) In your own words define ‘interest.

c) Compare your answer with your neighbour.

d) Let group leaders present your findings to the whole class.

Example

Josephine a S.2 student was sent home for fees. She had no transport to reach her village, she needed UGX 20,000. Her classmate Jane offered to give her money on condition that she gives her interest of 10% on return.

a) Calculate the interest paid by Josephine.

b) Calculate the money received by Jane.

Solution

a) 10/100 × UGX 20,000

= UGX 2,000

b) UGX 20,000 + = UGX 2,000

= UGX 22,000

Exercise 13.3

1. Patrick wanted to expand his tea plantations to more four acres of land. He had the land but needed more UGX 5,000,000 for seedlings and labour. He got a loan worth UGX 5,000,000 at a simple interest rate of 27% per annum for two years.

a) Calculate the simple interest

b) Calculate the total amount paid by Patrick.

2. Kato got a loan to expand his poultry project worth UGX 5,600,000 for one year. The loan attracts an interest of 5%. Calculate the,

a) simple interest that will be received by the bank.

b) total amount of money that will be paid by Kato to the bank.

3. Moreen runs a family shop and the demand for products is very high. She got a loan worth UGX 3,000,000 from Wazalendo SACCO for ten years to expand the business. The loan attracts an interest of 18.5% per annum. Calculate the;

a) simple interest she paid.

b) total amount that is supposed to be paid back.

Insurance

Activity 13.3 Why is insurance needed? (Discuss in groups)

What you need: a pen, notebook, sugar paper.

What to do: Read the story about

Joan and answer the following questions; Joan is a business woman dealing in transporting maize grains from Masindi to Kampala. She insured her vehicles against accidents and fire. One of her vehicles got an accident and Insurance compensated her..

1. Use your own words to define the term “Insurance.”

2. What is the importance of insurance in business?

3. Mention at least four insurance companies in Uganda.

4. Present your work to the whole class

Example

A bank gave out UGX 750,000,000 to women groups that operate in Owino market in Kampala last month. 3% was charged to customers and it was paid to NIC Insurance. Calculate the money that was paid out to NIC Insurance.

Exercise 13.4

1. Okwi bought a vehicle at UGX 25,000,000 and registered in an insurance which charges 4% of the cost of the car. company

a) How much money did Okwi pay to the insurance company?

b) What was the total cost of the vehicle?

2. Ninsiima earns a monthly income of UGX 1,800,000 but only receives UGX 1,764,000 after deducting a percentage for medical insurance.

a) How much money is deducted as insurance?

b) Calculate the percentage given to the insurance company.

c) Find the total amount he pays to the insurance company in one year.

Discount

Towards the festive seasons, most traders and manufacturers give out discounts to attract more customers.

Example 1

Mazimba is a local retail trader in Mpigi district dealing in rice, maize flour and beans. He realised that his sales were going down due to competition from the neighbours that were selling at a cheaper price than his. He allowed a discount of 10%, 15% and 20% respectively on each item. The original price for Rice was UGX 3,000 per kg, Posho was UGX 2,000 per kg and Beans was UGX 4,000 per kg. Calculate the discount on;

a) Rice, Maize flour and Beans.

b) Amount charged after the discount per item.

Example 2

Annet went to the market and bought the following items; 2kg of rice at UGX 3,200 each, 12 kg of maize flour at UGX 2,500 each, 2 kg of meat at UGX 35,000. How much money did she pay for all the items if she was given a discount of 10%

Exercise 13.5

1. Akurut a trader deals in general merchandise. He gives out 50% off on prices for those who pay cash. The price for soap is UGX 50,000 per box, the price for cooking oil is UGX 70,000 per 20 litre jerrycan. If Asaph bought 1 box of soap and a 20 litre jerrycan of cooking oil and paid cash

a) Calculate the discount paid by Asaph on each item.

b) If Wycliff bought 10 litres of cooking oil and a half box of soap. Calculate the discount paid on each item.

2. A Supermarket announced the following reduction in prices for different items for the coming festive season