Consignment inventories

Question 1

What is the entity called if a business gives another business inventory to sell on their behalf?

Answer 1

The entity selling the inventory on behalf of the business is known as an AGENT or CONSIGNEE.

Question 2

What will the agent earn?

Answer 2

Commission

Question 3

What is inventory risk?

Answer 3

The risk that inventory might not be sold

Question 4

What is the JE of the consignee?

Answer 4

DR Bank (A) 200
CR Commission income (P/L) 20
CR Trade Payables (L) 180

Question 5

What is the JE of the consignment?

Answer 5

DR Trade Receivables (A) 180
DR Commission expense (P/L) 20
CR Sales income (P/L) 200

DR Cost of sales expense (P/L)  100
       CR Inventory (A)                          100

Question 6

What is gross profit (Markup)?

Answer 6

Sales income - cost of sales expense = Gross profit (Markup)

Question 7

e.g Sales income 100
Less: Cost of sales (60)
Equals: Gross profit (Mark-up) 40

What is the gross profit % on sales?
What is the gross profit % on cost of sales?

Answer 7

MU % on sales:40/100=40%

MU % on COS: 40/60=67%

Question 8

If: markup on sales: 20%

markup on COS: 20%

Answer 8

MU/Sales = 20/100 =20
MU=20
Sales=100
Therefore COS=80

MU/COS= 20/100
MU=20
COS=100
Therefore Sales=120

Question 9

What is the method to use to calculate the unknown variable?

Answer 9

Sales - COS= Markup and Have (in Rand) x (Want/Have)

e.g MU=40%, cost sells for R350
Sales 140
COS 100
MU 40

350 x 100/140 = R250