Pricing of Goods Sent on Consigmnent

Pricing of Goods Sent on Consigmnent 

Goods can be consigned to the consigneç either (1) at cost or (ii) at invoice price.

At cost. In case of this method the goods are charged to the consignment at cost price to the consignor. The proforma invoice is also prepared at this price. For example if the goods costing Rs 10,000 are purchased by A and 80 per cent of such goods are sent by him on consignment to Bombay, proforma invoice will show the value of goods as Rs 8,000 and the Consignment to Bombay account will also be charged with this price. The consignee may be given the direction regarding the price at which he should sell the goods (see illustration 1.2.).

At invoice price, In case of this method the goods are charged to the,consignment at a price higher than cost The proforma invoice also shows the value of goods at such higher price. The excess of invoice price over the actual cost, represents the profit which the consignor intends to make on the goods consigned. For example, if in the above case the goods are consigned at a profit of 25 per cent on cost (or 20 per cent on invoice price), the consignment account will be charged with Rs 10,000 (i.e., Ps 8,000 + Rs 2,000) for the value of goods sent on consignment However, in order to find out the profit, at the end of the accounting period, the consignment account will be given credit with the excess price so charged. In this case, the credit to the consignment account will be of Rs 2,000. Thus, in fact, consignment account has been charged only with the cost (i.e., Ps 10,000— Ps 2,000) of the goods sent on consignment as has been done in the first case. Suitable adjustment for profit clement included in the stock with the consignee has also to be made