On May 3, 2020, Windsor Company consigned 90 freezers, costing $480 each, to Remmers Company. The cost of shipping the freezers amounted to $850 and was paid by Windsor Company. On December 30, 2020, a report was received from the consignee, indicating that 45 freezers had been sold for $780 each. Remittance was made by the consignee for the amount due after deducting a commission of 6%, advertising of $210, and total installation costs of $330 on the freezers sold.

(a) Compute the inventory value of the units unsold in the hands of the consignee.

(b) Compute the profit for the consignor for the units sold.

(c) Compute the amount of cash that will be remitted by the consignee.

a. Value of Ending inventory $ 22025

b. Profit = $ 10429

c. Amount Remitted to the Consignor $32454

Explanation:

Windsor Company

Goods Sent on Consignment 90 * $ 480 = $ 43,200

Shipping Charges $ 850

Total $44050

Cost of One Freezer = $ 44050 / 90 = $ 489.44

Cost of 45 Freezers = $22025

The ending inventory value is calculated by multiplying the unit costs with the units at hand.

a. Value of Ending inventory at the Hands of the Consignee = Units * Cost Price = 45 * $ 489.44 = $ 22025

Sales by the Consignee 45 * $ 780 = $ 35100

b. Profit = Sales - (Cost + Expenses) = $ 35100 - ($22025 + $2646)

= $ 10429

Profit is calculated by subtracting all the expenses and the cost from the sales

Installation Charges $330

Advertisement Costs $ 210

Commission (6% of 35100) = $2106

Total Expenses $2646

c. Amount Remitted to the Consignor = Sales - Expenses = ($ 35100 - $2646) = $32454

Windsor Company and Remmers Company

a) Inventory value of unsold units in consignee's hands:

Product cost = $480 per freezer

Freight cost = $9.44 per freezer

Total cost = $489.44 per freezer

Inventory = 45 freezers (90 - 45)

Inventory value = $489.44 x 45 = $22,024.80

b) Profit for the consignor for the sold units:

Sales = $35,100 (45 x $780)

Less Product cost - $22,024.80 (45 x $489.44)

Less Sales Commission = $2,106 (6% of $35,100)

Less Advertising = $210

Less Installation = $330

Profit = $10,429.20

c) Amount of cash to be remitted by the consignee:

Sales Proceeds = $35,100

Less Sales Commission = $2,106 (6% of $35,100)

Less Advertising = $210

Less Installation = $330

Amount to be remitted = $32,454

Explanation:

In consignment relationships, the goods under consignment belong to the the consignor until they are sold to a third party. While the consignee has physical possession, the ownership of the consigned goods belong to the consignor.

The closing inventory value must be included in the consignor's inventory and not in the consignee's.

The profit for the consignor represents the sales value less associated costs. The advertising cost is regarded as a period costs, hence, it was not apportioned between cost of sales and inventory.

Before the consignee can remit cash for items sold, she deducts her commission, including incidental costs incurred.