Merchandise & Consignee

  • Creator
  • #224515
    Maher Hussien

    How come the mark up of 40,000 is 16,000 , According to my information , 40% markup of 100 means 100 x 140% = 140
    So when I Have to return the 140 to orginal Cost it should be 140/140%
    And A like the 40,000 should be dived on 140%
    Please Advise

    86. Question ID: CMA1 M1 Q53 (Topic: Cash)
    The following items were included in Opal Co.’s inventory account at December 31, 20X5:

    Merchandise out on consignment, at sales price
    (40% of the sales price is markup) $40,000
    Goods purchased, in transit, shipped FOB shipping point 36,000
    Goods held on consignment by Opal 27,000
    By what amount should Opal’s inventory account at December 31, 20X5 be reduced for presentation on the December 31 financial statements?

    A. $51,000.
    B. $43,000.correct
    C. $103,000.
    D. $67,000.
    Correct Answer Explanation for B:

    The goods that are out on consignment should be included in Opal’s inventory, but at their purchase price, not at their selling price. Since the markup is $16,000 ($40,000 × 0.40), the inventory balance needs to be reduced by $16,000 in order to report the consigned goods at cost.

    The $36,000 in goods that were purchased FOB shipping point but were still in transit should be included in inventory on the December 31 balance sheet, as title passed when the goods were delivered to the courier.

    The $27,000 in goods that are held on consignment by Opal should not be included in Opal’s inventory because goods held on consignment still belong to the other company.

    Thus, in total, Opal should reduce its inventory balance by the $16,000 markup on the merchandise and the $27,000 in goods held on consignment, or $43,000.

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  • Author
  • #224521
    Lynn Roden
    HOCK international

    Hi Maher Hussien,

    “Of” means multiply. 40% of some number means that number multiplied by 40%. Therefore, a markup of 40% of the sales price means multiply the sales price by 0.40 to find the markup amount.

    We know the sales price is $40,000. $40,000 x 0.40 = $16,000, so the markup is $16,000.

    Therefore, the cost is the $40,000 selling price minus the $16,000 markup, which equals $24,000.


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