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

Kemi Merchants consigned 600600 cartons of goods to Musa. The terms of remuneration agreed upon were an ordinary commission of 5%5\% on total sales, a del-credere commission of 2.5%2.5\% on credit sales, and an overriding commission of 10%10\% on excess sales proceeds above the benchmark price of ₦4,0004,000 per carton. Musa sold 400400 cartons on credit at ₦4,5004,500 per carton and 200200 cartons for cash at ₦4,0004,000 per carton. During the period, a credit customer defaulted, giving rise to a bad debt of ₦30,00030,000. What is the net amount payable by Musa to Kemi Merchants?

  1. ₦2,405,000Answer
  2. B
    ₦2,375,000
  3. C
    ₦2,385,000
  4. D
    ₦2,425,000

Answer

The net amount payable by Musa to Kemi Merchants is ₦2,405,000.
Total sales generated by the consignee amount to ₦2,600,000 (₦1,800,000 credit sales + ₦800,000 cash sales). The consignee earns ordinary commission of ₦130,000 (5% of ₦2,600,000), del-credere commission of ₦45,000 (2.5% of ₦1,800,000 credit sales), and overriding commission of ₦20,000 (10% of ₦200,000 surplus above benchmark price), totaling ₦195,000 in commission. Because del-credere commission is paid, the consignee bears the ₦30,000 bad debt. Thus, the net amount payable to the consignor is ₦2,600,000 minus ₦195,000, which equals ₦2,405,000.

Step-by-Step Solution

1
Calculate sales revenue
Credit sales = 400×₦4,500=₦1,800,000400 \times ₦4,500 = ₦1,800,000; Cash sales = 200×₦4,000=₦800,000200 \times ₦4,000 = ₦800,000; Total sales = ₦1,800,000+₦800,000=₦2,600,000₦1,800,000 + ₦800,000 = ₦2,600,000.
Determines total gross proceeds received by the consignee.
2
Compute total commission payable
Ordinary commission = 5%×₦2,600,000=₦130,0005\% \times ₦2,600,000 = ₦130,000; Del-credere commission = 2.5%×₦1,800,000=₦45,0002.5\% \times ₦1,800,000 = ₦45,000; Benchmark sales value = 600×₦4,000=₦2,400,000600 \times ₦4,000 = ₦2,400,000; Excess sales = ₦2,600,000−₦2,400,000=₦200,000₦2,600,000 - ₦2,400,000 = ₦200,000; Overriding commission = 10%×₦200,000=₦20,00010\% \times ₦200,000 = ₦20,000; Total commission = ₦130,000+₦45,000+₦20,000=₦195,000₦130,000 + ₦45,000 + ₦20,000 = ₦195,000.
Calculates each type of commission earned by the consignee under the specified terms.
3
Determine net proceeds remittable to consignor
Net amount payable = Total sales - Total commission = ₦2,600,000−₦195,000=₦2,405,000₦2,600,000 - ₦195,000 = ₦2,405,000. The bad debt of ₦30,000 is borne by Musa because del-credere commission was charged.
Under a del-credere commission arrangement, bad debt losses are not chargeable to the consignor.

Key Concept

Consignee Commission Computation & Del-Credere Bad Debt Treatment
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Topics

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

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