Question

On August 5, 2017, McClellan Art Studio shipped 50 paintings on consignment to Home Decor. The cost of each painting was $130. The cost of shipping the paintings was $300 and was paid for by McClellan Art Studio. On December 30, 2017, the consignee reported the sale of 42 paintings at $315 each. The consignee remitted payment for the amount due after deducting an 8% commission, advertising expense of $250, and setup costs of $175. The total profit on units sold for the consignor is

A : $6,034.60.
B : $6,711.60.
C : $7,770.00.
D : $7,345.00.

Answer 1

The total profit on units sold is A) $6,034.60

Step-by-step explanation:

The formula for calculating profit is total revenue - total cost, so here also for calculating the profit on units sold we have to do the same thing. We will calculate the revenue and cost separately here, but one thing to note here is that in the total cost of goods sold and advertising and set up expenses, cost of those units are also included which were not sold.

So the first step would be to calculate the cost of unsold stock -

Cost of unsold stock = number of units not sold x price per unit

= 8 x 130

= $1040

adding proportionate expenses on unsold stock here = 300 / 50 x 8

= $48

Therefore the total cost of unsold stock = $1088

REVENUE =

Sales = number of units x price per unit

= 42 x $315

= $13230

COST =

Cost of goods sent on consignment = number of units x price per unit

= 50 x $130

= $6500

ADDING Freight charges = $300

LESS unsold stock = $1088

ADD advertising expenses = $250

ADD set up cost = $175

ADD commission = $13230 x 8% = $1058.4 ( calculated on sales )

TOTAL COST = $7195.4

profit = revenue - cost

= $13230 - $7195.4

= $6034.6