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

Nkem Enterprises consigned 800800 cases of merchandise to Babatunde. Babatunde sold 500500 cases for cash at ₦2,0002,000 per case and 300300 cases on credit at ₦2,2002,200 per case. The contract specified three types of commission: 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 total sales value achieved in excess of the benchmark price of ₦1,8001,800 per case. During the period, a credit customer defaulted, incurring a bad debt of ₦50,00050,000. What is the total commission earned by Babatunde?

  1. ₦121,500Answer
  2. B
    ₦146,500
  3. C
    ₦71,500
  4. D
    ₦111,500

Answer

The total commission earned by Babatunde is ₦121,500.
The total commission is calculated by summing the ordinary commission on total sales (5% of ₦1,660,000 = ₦83,000), del-credere commission on credit sales (2.5% of ₦660,000 = ₦16,500), and overriding commission on price realization above benchmark (10% of ₦220,000 = ₦22,000), yielding ₦121,500.

Step-by-Step Solution

1
Calculate Cash Sales, Credit Sales, and Total Sales
Cash Sales = 500×₦2,000=₦1,000,000500 \times ₦2,000 = ₦1,000,000; Credit Sales = 300×₦2,200=₦660,000300 \times ₦2,200 = ₦660,000; Total Sales = ₦1,000,000+₦660,000=₦1,660,000₦1,000,000 + ₦660,000 = ₦1,660,000.
Sales figures are required to determine the base amount for each commission type.
2
Compute Ordinary Commission
Ordinary Commission = 5%×₦1,660,000=₦83,0005\% \times ₦1,660,000 = ₦83,000.
Ordinary commission is earned on total sales revenue.
3
Compute Del-Credere Commission
Del-Credere Commission = 2.5%×₦660,000=₦16,5002.5\% \times ₦660,000 = ₦16,500.
Del-credere commission is calculated on credit sales (or total sales if explicitly specified, but standard provision applies to credit sales).
4
Compute Overriding Commission
Excess price on cash sales = 500×(₦2,000−₦1,800)=₦100,000500 \times (₦2,000 - ₦1,800) = ₦100,000; Excess price on credit sales = 300×(₦2,200−₦1,800)=₦120,000300 \times (₦2,200 - ₦1,800) = ₦120,000; Total excess = ₦220,000₦220,000; Overriding Commission = 10%×₦220,000=₦22,00010\% \times ₦220,000 = ₦22,000.
Overriding commission rewards selling above the specified benchmark price.
5
Sum all commission components
Total Commission = ₦83,000+₦16,500+₦22,000=₦121,500₦83,000 + ₦16,500 + ₦22,000 = ₦121,500.
Adding the three commission components gives the gross commission earned by the consignee.

Key Concept

Consignee's Commission Structure (Ordinary, Del-Credere, and Overriding)
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Topics

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

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