Chapter 9

Consignment Sales

PROBLEM 1: TRUE OR FALSE

1. TRUE
2. TRUE
3. FALSE
4. FALSE
5. FALSE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. A
2. D
3. B
4. A
5. Solutions:

Requirement (a):

The commission expense is computed as follows:

Net remittance 232,000

Freight out 16,000
Installation costs 8,000
Total 256,000
Divide by: 80%
Gross selling price of goods sold 320,000
Multiply by: 20%
Commission expense 64,000

Cost of goods sold is computed as follows:

Unit cost 10,000

Freight cost per unit (3,000 ÷ 20) 150
Total unit cost 10,150
Multiply by: Number of water heaters sold 16
Cost of goods sold 162,400

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Profit is computed as follows:

Gross selling price of goods sold 320,000

Cost of goods sold (162,400)
Gross profit 157,600
Freight out (16,000)
Installation costs (8,000)
Commission expense (64,000)
Profit 69,600

Requirement (b):

Unit cost 10,000

Freight cost per unit (3,000 ÷ 20) 150
Total unit cost 10,150
Multiply by: Unsold units (20 - 16) 4
Ending inventory 40,600

PROBLEM 3: EXERCISE

Solutions:

Requirement (a):

The publisher’s suggested retail price is computed as follows:

Let X = Book sales at the publisher’s suggested retail price

2%X + 20%X = 69,300

20%X = 69,300
X = 69,300 / 22%
X = 315,000

315,000 ÷ 700 books sold = 450 publisher’s suggested retail price per book

The publisher’s profit is computed as follows:

Revenue (450 x 700) 315,000

Cost of goods sold (a) (225,400)
Gross profit 89,600
Tax expense (2% x 315,000) (6,300)
Commission expense (20% x 315,000) (63,000)
Profit 20,300

2
(a)
The cost of goods sold is computed as follows:
No. of books sold 700
Unit cost 300
Total 210,000
Freight (22 x 700) 15,400
Cost of goods sold 225,400

Requirement (b):

Commission based on publisher's suggested retail price

(315,000 x 20%) 63,000
Mark up on publisher's suggested retail price
(315,000 x 15%) 47,250
Commission income 110,250

Requirement (c):

30
No. of unsold books
0
30
Unit cost before freight
0
90,00
Total 0
Freight (22 x 300) 6,600
96,60
Ending inventory 0

PROBLEM 4: CLASSROOM ACTIVITY

Solution:

Requirement (a):

Total sales [2,100,000 x (8-3)] 10,500,000

(5,125,000
Cost of goods sold (a) )
Gross profit 5,375,000
(1,750,000
Commission (b) )
Finder's fee (5% x 1,750,000) (87,500)
Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
Profit 3,292,500

(a)
Cost of goods sold is computed as follows:
Unit cost 1,000,000

3
 Freight per machine (200,000 ÷ 8) 25,000
Total unit cost 1,025,000
Multiply by: No. of machines sold 5
Cost of goods sold 5,125,000

(b)
The commission is computed as follows:
We will use the following formula for bonus after bonus:

B = P – [P ÷ (1 + Br)]

Commission = Gross sales – [Gross sales ÷ (1 + Commission rate)]

Commission = 10,500,000 – [10,500,000 ÷ (1 + 20%)]
Commission = 10,500,000 – 8,750,000
Commission = 1,750,000

Requirement (b):
Total sales [2,100,000 x (8-3)] 10,500,000
(1,750,000
Commission )
Finder's fee (87,500)
Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
Net remittance 8,417,500

Requirement (c):
Unit cost before freight 1,000,000
Freight per machine (200,000 ÷ 8) 25,000
Total unit cost 1,025,000
Multiply by: No. of unsold machines 3
Ending inventory 3,075,000

PROBLEM 5: MULTIPLE CHOICE - THEORY

1. B
2. B
3. C
4. D
5. B

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PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
1. A (See solution in the second requirement)

2. B
Solution

The total unit cost is computed as follows:

Cost of consigned goods (1M x 8) 8,000,000
Freight 200,000
Total goods available for sale (in pesos) 8,200,000
Divide by: TGAS (in units) 8
Total unit cost 1,025,000

The number of unsold units is computed as follows:

Ending inventory 3,075,000
Divide by: Total unit cost 1,025,000
Unsold units 3

The number of units sold is computed as follows:

TGAS (in units) 8
Unsold units (3)
No. of units sold 5

Profit is computed as follows:

Total sales (2,100,000 x 5) 10,500,000

(5,125,000
Cost of goods sold (a) )
Gross profit 5,375,000
(1,750,000
Commission (b) )
Finder's fee (87,500)
Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
Profit 3,292,500

(a)
Cost of goods sold is computed as follows:
Total unit cost 1,025,000
No. of units sold 5
Cost of goods sold 5,125,000

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(b)
The commission is computed as follows:
We will use the following formula for bonus after bonus:

B = P – [P ÷ (1 + Br)]

Commission = Gross sales – [Gross sales ÷ (1 + Commission rate)]

Commission = 10,500,000 – [10,500,000 ÷ (1 + 20%)]
Commission = 10,500,000 – 8,750,000
Commission = 1,750,000

3. A (20 x 1,600) = 32,000

4. C (505 – 5) x ₱100 x 90% = 45,000

5. D (8,500 ÷ 85%) = 10,000

6. B (5,000 + 7,000 + 50,000) = 62,000

7. D (18,000 + 900) = 18,900

8. D (40,000 x 40%) + 27,000 = 43,000

9. C
Solution:
Sales revenue (7,700 x 5) 38,500
(30,300
Cost of goods sold (6,000 x 5) + (720 x 5/12) )
Gross profit 8,200
(3,500
Commission based on sales net of commission (a)
)
(350
Marketing expense based on commission (3,500 x 10%)
)

Delivery and installation (30 x 5) (150)

Profit 4,200

(a)
We will use a formula similar to the formula of bonus after bonus:
38,50
Commission based on sales after 38,50 0
= -
commission 0 1+10
%
Commission based on sales after commission = 3,500

10. A
Solution:
Sales 38,500
Commission based on sales net of commission (3,500

6
 )
(350
Marketing expense based on commission (3,500 x 10%)
)

Delivery and installation (30 x 5) (150)

Net remittance to consignor 34,500