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The Petunia Corporation grows and consigns flowering plants to retailers. The consignee
receives a sales commission of 20%. Also, he is paid to water and care for the plants in
his possession. Dead plants are discarded but cannot exceed 15% of the plants shipped or
the consignee must pay the cost price for them. Freight charges are to be borne by the
consignor. Each plant costs $0.25 to grow and prepare for shipment and is to be sold for
$1.00. The consignee must bear sales costs such as clerks’ salary, light, rent and
depreciation of display counters. The consignee is a Del credere agent.
Throughout 1996, Petunia Corporation shipped a total of 2,000 plants to Gigantic
Department store. Of these, 1,500 were sold and 60 were discarded. Freight cost $200
and was paid by Gigantic. Clerks’ salaries, rent, light and depreciation was $125.
Watering cost $110. One-third of the sales were on credit, of which $200 is still
outstanding and $10 had been written off as uncollectible. Both companies record
consignments separately from other transactions.
1. What is the profit on consignments for the consignee?
Computation of consignment profit:
Consignment sales (1500 X $1)
Cost of units sold (1500 X $0.25)
Freight (200)
Clerk’s salaries
Watering costs
Commission charged by consignee (20% X $1,500)
Profit on consignment sales
2. What is the profit on consignments sales for the consignor?
Computation of consignment profit:
Consignment sales (1500 X $1)
Cost of units sold (1500 X $0.25)
Commission charged by consignee (20% X $1,500)
Profit on sales for the consignor
$1,500
(375)
(125)
(110)
(300)
$ 390
$1,500
(375)
(300)
$825