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SOL. MAN. Chapter 9 Consignment Sales 2021 Edition
Bachelor of Science in Accountancy (University Of Cebu - Lapu-Lapu and Mandaue)
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Chapter 9
Consignment Sales
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. FALSE
3. FALSE
4. TRUE
5. TRUE
PROBLEM 2: MULTIPLE CHOICE – THEORY
1. A
2. C
3. B
4. D
5. D
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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
245,700 net remittance = X – (20%X) – (2%X)
245,700 = .78X
X = 245,700 ÷ .78
X = 315,000
 315,000 ÷ 700 books sold = 450 publisher’s suggested
retail price per book
OR
Alternative solution:
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)
Cost of goods sold (300 + 22 freight)
x 700
Gross profit
Tax expense (2% x 315,000)
Commission expense (20% x
315,000)
Profit of publisher
315,000
(225,400)
89,600
(6,300)
(63,000)
20,300
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Requirement (b):
No. of unsold books
300
Unit cost including freight (300 + 22
freight)
322
Ending inventory
96,600
Requirement (c):
Commission based on publisher's suggested
retail price
(315,000 x 20%)
Mark up on publisher's suggested retail price
(315,000 x 15%)
Commission income
63,000
47,250
110,25
0
PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL
1. A (500,000 original cost + 20,000 freight) = 520,000
 The consigned goods are included in Yahama’s
inventory and not in the consignee’s.
 The repair costs are charged as expense.
 The advanced commission is treated as receivable in
Yahama’s books and as liability (e.g., unearned
commission income) in the consignee’s books.
2. B
Revenue (960,000 ÷ 80%)
COGS
(1)
1,200,000
(504,000)
69
Gross profit
6,000
Commission expense (1.2M x 20%)
(240,000)
Profit
456,000
(1)
1,200,000
Revenue
Divide by: Sale price per unit
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25,000
No. of units sold
Multiply by: Unit cost [10K + (25K ÷
50 units)]
COGS
48
10,500
504,000
3. D (40,000 x 40%) + 27,000 = 43,000
4. C
Solution:
Sales revenue (7,700 x 5 units)
Cost of goods sold (6,000 x 5 units) + (720 x
5/12)
Gross profit
Commission based on sales net of commission
(a)
Marketing expense based on commission
(3,500 x 10%)
Delivery and installation (30 x 5 units)
Profit
38,500
(30,300)
8,200
(3,500)
(350)
(150)
4,200
(a)
We will use a formula similar to the formula of bonus
after bonus:
38,5
00
1+1
0%
Commission based on sales after commission = 3,500
Commission based on sales after
commission
38,5
=
00
5. A
Solution:
Sales
Commission based on sales net of commission
Marketing expense based on commission
(3,500 x 10%)
Delivery and installation (30 x 5)
Net remittance to consignor
38,500
(3,500)
(350)
(150)
34,500
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PROBLEM 5: CLASSROOM ACTIVITY
Solution:
Allegretto is a principal because it controls the tickets
before they are resold to the customer. This is evidenced
by the following:
a. Allegretto is primarily responsible for fulfilling
the contract, which is providing the right to fly;
although, not the flight itself, which will be provided
by the airline;
b. Allegretto has inventory risk because it bears the
loss for unsold tickets;
c. Allegretto has the discretion in establishing the
resale price of the tickets; and
d. Allegretto’s consideration is not in the form of a
commission, but rather the resale price of the ticket.
Allegretto recognizes revenue at the gross
amount of the resale price of the tickets as the tickets
are sold to the customers.
PROBLEM 6: FOR CLASSROOM DISCUSSION
1. Solution:
Pizzicato is an agent because it does not control the
good or service before it is provided to the customer.
Pizzicato’s performance obligation is solely to arrange
the provision of good or service by the restaurants. This
is evidenced by the following:
a. The restaurants, and not Pizzicato, are the ones
primarily responsible in providing the meals.
b. Pizzicato does not have inventory risk because it
does not purchase the vouchers before they are sold
to the customers.
c. Pizzicato does not have the full discretion in
setting the prices of the vouchers because the prices
are jointly determined with the restaurants.
d. Pizzicato’s consideration is in the form of a
commission.
e. Pizzicato is not exposed to credit risk.
Pizzicato recognizes revenue in the amount of the
commission to which it is entitled upon the sale of each
voucher.
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2. Solution:
Staccato is a principal because it controls the
equipment before it is provided to the customer. This is
evidenced by the following:
a. Staccato is primarily responsible for fulfilling the
contract because, although the manufacturing is
subcontracted, Staccato is ultimately responsible for
ensuring that the equipment meets the specifications
for which the customer has contracted.
b. Staccato has inventory risk because of its
responsibility for corrections to the equipment
resulting from errors in specifications, even though
the supplier has inventory risk during production and
before shipment.
c. Staccato has discretion in establishing the selling
price with the customer.
d. Staccato’s consideration is not in the form of a
commission.
e. Staccato has credit risk for the amount receivable
from the customer.
When the performance obligation is satisfied,
Staccato recognizes revenue at the gross amount of the
selling price negotiated with the customer.
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