The Mathematics of Money

592 Chapter 15 Payroll and Inventory

34. Brian is the electronics manager for a department store. He earns a $37,400 annual salary, plus a commission of 3.5%
    on his department’s monthly sales over $45,000. In January, his department’s sales totaled $58,703. Calculate his
    gross pay for that month.


35. Tionesta works for a cell phone company at a kiosk at the mall. She earns $7.25 an hour, and she can receive a bonus
    based on the number of new subscribers she signs up each week, based on the table given below:

New Subscribers Bonus for Each

First 5 $0

Next 10 $25

Additional $50

Last week, Tionesta worked 35 hours and signed up 14 new subscribers. Calculate her gross pay for the week.

I. Additional Exercises

36. Based on the commission program described in Exercise 15, what is the most you could earn in a year when your sales
    totaled $375,000? What is least?


37. Suppose that you work for a company that offers a cafeteria plan. If the “menu price” of the benefi ts you select totals
    less than your benefi t allowance, you can receive the difference as additional pay. Why might it not be a good idea for
    you to do this?


38. In many of our examples, a worker was paid a higher rate per item (or a higher commission rate on sales) if they
    produced (or sold) more. Why do you suppose that a business would use this sort of scale instead of just paying a fl at
    rate?

592 Chapter 15 Payroll and Inventory

15.2 Inventory

The term inventory refers to the goods that a business owns for the purpose of selling to

customers. To effectively operate a business, management must be able to keep track of the

goods that it has in inventory, and assign a value to them. Determining the value of inven-

tory is necessary both to determine how much value the company has on hand in the form

of goods, and also to determine the cost of the merchandise that has been sold. (The use of

inventory to determine cost of goods sold is discussed both in this section and, in a bit more

detail, in Chapter 12.) In this section, we will consider several commonly used techniques

for placing a value on (known as valuing) inventory.

For most purposes, it is most useful for a business to know the value of its inventory at

cost. In this section we will be primarily discussing at-cost valuation; toward the end of the

section we will consider alternatives.

Specific Identification

The logically simplest method of valuing inventory is specific identification, keeping track

of the cost of each item of inventory individually. The total value of the inventory then is

simply the sum of the values of the items in inventory.