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Difficulty: HardConsignee's Commission: Ordinary, Del-Credere, and Overriding Commission

Suleiman Merchants consigned 500500 crates of goods to Danjuma Traders to sell on their behalf. The agreed commission structure was: an ordinary commission of 5%5\% on total sales, an overriding commission of 15%15\% on any excess sales proceeds realized above the target price of ₦4,0004,000 per crate, and a del-credere commission of 2.5%2.5\% on credit sales. During the consignment period, Danjuma Traders sold 300300 crates for cash at ₦4,5004,500 per crate and 150150 crates on credit at ₦4,8004,800 per crate. A credit customer subsequently defaulted, creating a bad debt of ₦96,00096,000. What is the total commission in Naira (₦) earned by Danjuma Traders?

Answer: 162000 ₦

Answer

The total commission earned by Danjuma Traders is ₦162,000.
Total commission earned by Danjuma Traders comprises Ordinary Commission (5%5\% of ₦2,070,000=2,070,000 = ₦103,500103,500), Overriding Commission (15%15\% of excess ₦270,000=270,000 = ₦40,50040,500), and Del-Credere Commission (2.5%2.5\% of credit sales ₦720,000=720,000 = ₦18,00018,000). Adding these together gives ₦103,500+40,500+18,000=₦162,000103,500 + 40,500 + 18,000 = \text{₦}162,000. Note that bad debt affects the net profit of the consignee but does not reduce the contractually earned commission amount.

Step-by-Step Solution

1
Calculate Cash Sales, Credit Sales, and Total Sales
Cash Sales = 300×₦4,500=₦1,350,000300 \times \text{₦}4,500 = \text{₦}1,350,000
Credit Sales = 150×₦4,800=₦720,000150 \times \text{₦}4,800 = \text{₦}720,000
Total Sales = \text{₦}1,350,000 + \text{₦}720,000 = \text{₦}2,070,000$
Sales revenues are required to compute the percentage commissions.
2
Determine target price value and excess sales proceeds
Total units sold = 300+150=450300 + 150 = 450 crates
Target sales value = 450×₦4,000=₦1,800,000450 \times \text{₦}4,000 = \text{₦}1,800,000
Excess sales proceeds = \text{₦}2,070,000 - \text{₦}1,800,000 = \text{₦}270,000$
Overriding commission applies specifically to the extra price realized beyond the ₦4,000 per crate target price.
3
Compute Ordinary Commission
Ordinary Commission = 5%×₦2,070,000=₦103,5005\% \times \text{₦}2,070,000 = \text{₦}103,500
Ordinary commission is earned on total sales.
4
Compute Overriding Commission
Overriding Commission = 15%×₦270,000=₦40,50015\% \times \text{₦}270,000 = \text{₦}40,500
Overriding commission is earned on the surplus sales proceeds realized above the target price.
5
Compute Del-Credere Commission
Del-Credere Commission = 2.5%×₦720,000=₦18,0002.5\% \times \text{₦}720,000 = \text{₦}18,000
Del-credere commission is calculated on credit sales to compensate the consignee for bearing the risk of bad debts.
6
Calculate Total Commission
Total Commission = \text{₦}103,500 + \text{₦}40,500 + \text{₦}18,000 = \text{₦}162,000$
Adding the three commission components yields the total commission earned by the consignee.

Key Concept

Computation of Ordinary, Overriding, and Del-Credere Commissions in Consignment Accounts
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Topics

Consignee's Commission: Ordinary, Del-Credere, and Overriding Commission

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