The Mathematics of Money

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Learning Objectives

LO 1 Calculate gross pay based on salary, hourly

wages, piece rate, or commission.

LO 2 Calculate net pay.

LO 3 Value inventory at cost based on average cost,

FIFO, or LIFO.

LO 4 Use inventory valuation to calculate cost of

goods sold.

LO 5 Estimate inventory at cost based on retail value

of inventory.

Chapter Outline

15.1 Payroll

15.2 Inventory

Payroll and

Inventory

15.1 Payroll

In this chapter, we will consider the calculations that support two very important finan-

cial tasks faced by a business: keeping track of its payroll and its inventory. In this first

section, 15.1, we will address payroll, the correct calculation and payment of wages and

salaries to employees. In Section 15.2 we will cover the calculations used to determine

the value of a business’s inventory. While both of these might sound straightforward

enough, in actuality there are a number of different techniques that may be used for each

of these tasks.

There are two main calculations that must be done to determine payroll. An employee’s

gross pay is the amount she earns before any deductions for benefits or taxes. Net pay, also

called take-home pay, is the amount she actually receives in her paycheck after all deductions

have been taken. We will discuss calculating gross pay first.

“It has not yet been recorded that any

human being has gained a very large or

permanent contentment from meditation

upon the fact that he is better off than

others.”

—Sinclair Lewis, “Main Street”

CHAPTER

15