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Questions and Answers
What does consignment sales primarily involve?
When is revenue recognized by the consignor in a consignment sale?
What type of costs can be capitalized in consignment sales?
Which of the following is NOT a part of capitalizable costs?
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What represents the seller's costs incurred to bring inventory to its intended condition?
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In consignment sales, what happens when a consignee sells the goods?
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What is the role of the consignee in a consignment sale?
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Which cost is generally included in cost of goods sold during consignment sales?
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Study Notes
Consignment Sales Overview
- Consignment sales involve transferring merchandise possession without title transfer.
- The consignor (owner) sends goods to the consignee (agent) for sale on commission.
- Revenue recognition for the consignor occurs upon consignee sale, when control transfers. This is a point-in-time method.
Cost Components for the Consignor
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Capitalizable/Inventoriable Costs: These costs are included in the cost of goods sold only when the goods are sold by the consignee.
- Manufacturing Costs: Include direct labor (DL), factory overhead (FOH), and other costs needed to prepare the inventory for its intended purpose.
- Cost of Purchase: This includes the purchase price of the goods.
- Costs of Goods Sold: Calculated using manufacturing costs per unit multiplied by units sold. Direct costs per unit should also be multiplied by units sold and units returned.
Financial Statement Impact
- Consignor: Recognizes revenue only upon sale by consignee; cost of goods sold is recognized at the same time.
- Consignee: Acts as an agent, does not recognize revenue or cost of goods sold for the consigned goods. They report sales revenue collected on behalf of the consignor and expenses incurred while acting as the agent.
- Expenses: The consignor and consignee each incur expenses. The consignor's costs are generally related to manufacturing, and the consignee's are related to selling the goods for the consignor. Expenses may include freight out and freight returned costs for both parties.
- Remittance: This involves the actual monetary transfers of funds from consignee to consignor after expenses and applicable commissions are accounted for. This may involve reimbursable charges like freight-out and freight-returned costs.
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Description
This quiz explores the key concepts of consignment sales, including how ownership and revenue recognition work between consignors and consignees. Learn about the cost components that affect financial statements, such as capitalizable costs and the calculation of goods sold. Test your understanding of these important financial principles.
