Question

B. Consignment Concept: Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers purchase his work there). Sweeney recently transferred a painting on consignment to a local barbershop, being 5% commission for the local barbershops. In 2018, local barbershops sold painting for $10,000. 1. How much is the revenue to Todd Sweeney for 2018 2. How much is expense for Sweeney for 2018 with regard to this consignment sale? 3.How much is the revenue to barbershops for 2018?

Answer 1

First, we need to understand what is consignment sale.

Consignment takes place when the owner or seller (also known as consignor) transfer the goods to another person, i.e. an agent (also known as consignee), and the agent undertakes to sell the goods to the final customer.

For this purpose, agent charges some commission (like 5% commission in this question) and the ownership is maintained with the owner, as only possession is transferred. The agent only gets commission on sale, because the sale proceeds belongs to the owner.

Now, let's solve this question.

1. Revenue to Todd Sweeny for 2018 is $10000, i.e. the amount of actual sale made and proceeds thereof from the final customer.

2. Expense for Sweeny for 2018 with regard to consignment sale is $500 ​​​​​(5% of $10000), i e. the agreed amount of commission, which is taken as percent on sale proceeds.

3. Revenue for barbershops for 2018 is $500, i.e. the amount of commission charged by the barbershops.