Question

On May 3, 2017, Sheffield Company consigned 80 freezers, costing $540 each, to Remmers Company. The cost of shipping the freezers amounted to $820 and was paid by Sheffield Company. On December 30, 2017, a report was received from the consignee, indicating that 40 freezers had been sold for $700 each. Remittance was made by the consignee for the amount due after deducting a commission of 6%, advertising of $180, and total installation costs of $350 on the freezers sold. (Round answers to 0 decimal places, e.g. 5,275.) (a) Compute the inventory value of the units unsold in the hands of the consignee. Inventory value $ (b) Compute the profit for the consignor for the units sold. Profit on consignment sales $ (c) Compute the amount of cash that will be remitted by the consignee. Remittance from consignee $

Answer 1

Solution

1. Computation of the inventory value of the units unsold in the hands of the consignee:

80 freezers shipped at cost of $540 each = $43,200

Add: Freight = $820

Inventory value = $44,020

Unsold units = 40

Inventory value of unsold units = 40 x ($44,020/80) = $22,010

1. Computation of profit for consignor for the units sold:

Consignment sales = 40 x $700 = $28,000

Less: Related costs and expenses –

Cost of units sold = 40 x ($44,020/80) = $22,010

Consignee commission = 6% x $28,000 = $1,680

Advertisement expense = $180

Installation cost = $350

Total costs and expenses = $24,220

Profit for consignor = 28,000 – 24,220 = $3,780

Hence, profit for consignor for the units sold = $3,780

1. Computation of the amount of cash that would be remitted by the consignee:

Consignment sales = 40 x $700 = $28,000

Less: commission at 6% = $1,680

Less: Advertising cost = $180

Less: installation cost = $350

Amount remitted by consignee = 28,000 – (1,680 + 180 + 350) = $25,790