Chapter 9

Consignment Sales

PROBLEM 9-1: TRUE OR FALSE

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

PROBLEM 9-2: THEORY & COMPUTATIONAL

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

1
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 9-3: 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):

No. of unsold books 300

Unit cost before freight 300
Total 90,000
Freight (22 x 300) 6,600
Ending inventory 96,600

PROBLEM 9-4: CLASSROOM ACTIVITY

Solution:

Requirement (a):

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

Cost of goods sold (a) (5,125,000)
Gross profit 5,375,000
Commission (b) (1,750,000)
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
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

3
(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
Commission (1,750,000)
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 9-5: MULTIPLE CHOICE - THEORY

1. B 6. D
2. B 7. C
3. C
4. D
5. B

4
PROBLEM 9-6: 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

Cost of goods sold (a) (5,125,000)
Gross profit 5,375,000
Commission (b) (1,750,000)
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

(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%)]

5
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
Cost of goods sold (6,000 x 5) + (720 x 5/12) (30,300)
Gross profit 8,200
Commission based on sales net of commission (a) (3,500)
Marketing expense based on commission (3,500 x 10%) (350)
Delivery and installation (30 x 5) (150)
Profit 4,200

(a) We will use a formula similar to the formula of bonus after bonus:
38,500
Commission based on sales after commission = 38,500 -
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)
Marketing expense based on commission (3,500 x 10%) (350)
Delivery and installation (30 x 5) (150)
Net remittance to consignor 34,500

11. C
Solution:
Gross profit from sale 9,000
Commission (adjusted) (5% x 72K) (3,600)
Selling expenses (800)
Installation and delivery (1,200)
Freight (2K x 6/10) (1,200)

6
Net profit 2,200

12. A
Solution:
Net remittance 82,600
Selling expenses 1,200
Cost of antennae given free 1,400
Delivery and installation 2,800
Net remittance before other costs but after commission 88,000
Commission (88K / 88%) x 12% 12,000
Sale price 100,000

13. C
Solution:
Sales 100,000
Cost of goods sold (9K x 8) + (600 x 8/12) (72,400)
Gross profit 27,600
Commission expense (12,000)
Selling expenses (1,200)
Cost of antennae given free (1,400)
Delivery and installation (2,800)
Net profit 10,200

14. B
Solution:
Net remittance 5,580
Selling expenses 360
Delivery and installation 180
Net remittance before other costs but after commission 6,120
Commission (6,120 / 85%) x 15% 6,120
Sale price 12,240

Sales 12,240
Cost of goods sold (120 x 36) + (600 x 36/60) (4,680)
Gross profit 7,560
Commission expense (see computation above) (6,120)
Selling expenses (360)
Delivery and installation (180)
Net profit 900

15. B (5 dozens x 12) = 60 – 36 sold = 24 unsold x [120 + (600/60)] = 3,120

7
16. A
Solution:
Net remittance 64,980
Delivery expense 850
Repair costs 2,000
Net remittance before other costs but after commission 67,830
Commission (67,830 / 85%) x 15% 11,970
Sale price 79,800

Sales 79,800
Cost of goods sold (see computation below) (52,780)
Gross profit 27,020
Commission expense (see computation above) (11,970)
Delivery expense (850)
Repair costs (2,000)
Net profit 12,200

Total sales 79,800

Less: Sale of first 200 units [200 x (200 x 150%)] (60,000)
Sales of units with increased sale price 19,800
Divide by: Increased selling price 330
Units sold at increased sale price 60
Add back: first 200 units sold 200
Total units sold 260
Multiply by: Unit cost [200 + (900/300)] 203
Cost of goods sold 52,780

17. A
Solution:
Unsold inventory (300 - 260) 40
Multiply by: Unit cost [200 + (900/300)] 203
Cost of unsold goods 8,120

18. B
Solution:
Net remittance 142,020
Delivery expense 180
Advertising expense 180
Net remittance before other costs but after commission 142,380
Divide by: Sale price per book net of commission (100 - 20) 80

8
Total books sold 1,780