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Goods costing Rs. 1,20,000 were sent on consignment basis. These goods are invoiced to give a gross margin of 20% on invoice price. The amount of loading is:
- a)Rs. 24,000.
- b)Rs. 30,000.
- c)Rs. 20,000.
- d)None of the above.
Correct answer is option 'B'. Can you explain this answer?
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Goods costing Rs. 1,20,000 were sent on consignment basis. These goods...
Calculation of Loading in Consignment Basis
Consignment Basis:
When goods are sent on consignment basis, the ownership of the goods is not transferred from the consignor to the consignee. The consignee just acts as an agent to sell the goods on behalf of the consignor. The consignor bears the risk of loss or damage to goods until they are sold.
Gross Margin:
Gross margin is the difference between the selling price of goods and the cost of goods sold. It is expressed as a percentage of the selling price.
Calculation:
Cost of goods = Rs. 1,20,000
Gross margin = 20% of invoice price
Let the invoice price be x.
Therefore, cost of goods sold = x - 20% of x = 0.8x
But, cost of goods = Rs. 1,20,000
0.8x = Rs. 1,20,000
x = Rs. 1,50,000
Loading:
Loading is the amount added to the cost of goods to arrive at the selling price. It includes expenses like freight, insurance, and other charges.
Loading = Selling price - Cost of goods sold
Selling price = Invoice price + Loading
Selling price = Rs. 1,50,000 + Loading
As per the question, the gross margin is 20% of the invoice price.
Therefore, gross margin = 20% of Rs. 1,50,000 = Rs. 30,000
Hence, the amount of loading is Rs. 30,000 (option B).
Consignment Basis:
When goods are sent on consignment basis, the ownership of the goods is not transferred from the consignor to the consignee. The consignee just acts as an agent to sell the goods on behalf of the consignor. The consignor bears the risk of loss or damage to goods until they are sold.
Gross Margin:
Gross margin is the difference between the selling price of goods and the cost of goods sold. It is expressed as a percentage of the selling price.
Calculation:
Cost of goods = Rs. 1,20,000
Gross margin = 20% of invoice price
Let the invoice price be x.
Therefore, cost of goods sold = x - 20% of x = 0.8x
But, cost of goods = Rs. 1,20,000
0.8x = Rs. 1,20,000
x = Rs. 1,50,000
Loading:
Loading is the amount added to the cost of goods to arrive at the selling price. It includes expenses like freight, insurance, and other charges.
Loading = Selling price - Cost of goods sold
Selling price = Invoice price + Loading
Selling price = Rs. 1,50,000 + Loading
As per the question, the gross margin is 20% of the invoice price.
Therefore, gross margin = 20% of Rs. 1,50,000 = Rs. 30,000
Hence, the amount of loading is Rs. 30,000 (option B).
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Goods costing Rs. 1,20,000 were sent on consignment basis. These goods are invoiced to give a gross margin of 20% on invoice price. The amount of loading is:a)Rs. 24,000.b)Rs. 30,000.c)Rs. 20,000.d)None of the above.Correct answer is option 'B'. Can you explain this answer?
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