Question

On May 3, 2017, Eisler Company consigned 80 freezers, costing \(500 each, to Remmers Company. The cost of shipping the freezers amounted to \)840 and was paid by Eisler Company. On December 30, 2017, a report was received from the consignee, indicating that 40 freezers had been sold for \(750 each. Remittance was made by the consignee for the amount due after deducting a commission of 6%, advertising of \)200, and total installation costs of $320 on the freezers sold.

Instructions

(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.

Short answer

Value of unsold unit= $20,420

Profit = $7,260

Cash = $27,680

Step-by-step solution

Meaning of Remittance

A remittance is a monetary payment that is sent to another party. In general, it is a payment of a billmade by the customer to its supplier.

Calculation of value of unsold units, profit, and cash

(a) Inventory value of unsold units of freezers

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{freezers}& =& \mathrm{Cost}\mathrm{per}\mathrm{freezer}\times \mathrm{Freezers}\mathrm{sold}\\ & =& \$500\times 40\\ & =& \$20,000\end{array}$

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{shipping}& =& \frac{\mathrm{Cost}\mathrm{of}\mathrm{shipping}\mathrm{the}\mathrm{freezer}}{\mathrm{Freezers}\mathrm{consigned}}\times \mathrm{Freezers}\mathrm{sold}\\ & =& \frac{\$840}{80}\times 40\\ & =& \$420\\ \mathrm{Inventory}\mathrm{value}\mathrm{of}\mathrm{units}\mathrm{sold}& =& \mathrm{Cost}\mathrm{of}\mathrm{freezers}+\mathrm{Cost}\mathrm{of}\mathrm{shipping}\\ & =& \$20,000+\$420\\ & =& \$20,420\end{array}$

(b) Profit

$\begin{array}{rcl}\mathrm{Sales}& =& \mathrm{Sales}\mathrm{price}\times \mathrm{Freezers}\mathrm{sold}\\ & =& \$750\times 40\\ & =& \$30,000\\ \mathrm{Commission}& =& \mathrm{Sales}\times 6\%\\ & =& \$30,000\times \frac{6}{100}\\ & =& \$18,000\\ \mathrm{Profit}& =& \mathrm{Sales}-\mathrm{Value}\mathrm{of}\mathrm{units}\mathrm{sold}-\mathrm{Commission}-\mathrm{Advertising}\mathrm{expense}-\mathrm{Installation}\mathrm{cost}\\ & =& \$30,000-\$20,420-\$1,800-\$200-\$320\\ & =& \$7,260\end{array}$

(c) Cash

$\begin{array}{rcl}\mathrm{Cash}& =& \mathrm{Sales}-\mathrm{Commission}-\mathrm{Advertising}\mathrm{expense}-\mathrm{Installation}\mathrm{cost}\\ & =& \$30,000-\$1,800-\$200-\$320\\ & =& \$27,680\end{array}$