Consignment is a placement of goods or property in the hands of an agent for sale. The one who consigns his property to the agent is the consignor and the agent of the consignment (the person who will hold the inventory) is the consignee. Consignment Inventory is inventory that is in the possession of the customer, but is still owned by the supplier because no transfer of title takes place.
The consignment should be done with a contract stating in the terms the length or period of the contract, the amount of consideration, how damages will be handled, and the details of insurance and security. Also, there may be brand specific requirements, as well as storage/transportation related issues. The sale of the consigned property or the use or consumption of the property prior to sale must be agreed to in detail. The consignee is entitled to receive commission based on sales made. The consignee has the right to put a mark-up on the product.
Consignment contract involves:
a. Consignor sends goods to consignee
b. Consignor continues to own consigned goods
Issues Concerning Consigned Goods
- Physical location of consigned goods: Consigned goods are located in the warehouse of consignee
- Ownership of consigned goods: Ownership of consigned goods belongs to consignor
- Inventory counting Consignor should include consigned goods in the inventory
even if consigned goods are currently located in the warehouse of consignment
- Consignee should exclude consigned goods from the inventory even if consigned goods are currently located in the warehouse of consignee
Consigned Goods Inventory Problem 1
ABC Co. consigned goods costing 10,000 to XYZ, Inc. Transportation costs of delivering the goods to XYZ totaled 2000. Repair costs for goods damaged during transportation totaled 500.To induce XYZ, Inc. in accepting the consigned goods, ABC Co. gave XYZ 1000 representing an advance commission. How much is the cost of the consigned goods?
ANSWER: 12000 (10,000+2000)
Consigned Goods Inventory Problem 2
On December 20, 2017 Alyssa sent 200 units of its products to Ashley for consignment sales. On December 31, 2017 Alyssa counted 500 units of its products in their warehouses. What is the number of units to be reported as Entity A's inventory at December 31, 2017?
Answer: 700 units (500 units on hand + 200 units of consigned goods)
Consigned Goods Inventory Problem 3
On December 20, 2017 Shai sent 200 units of its products to Chen for consignment sales. On December 31, 2017, Chen counted 500 units of products in their warehouses, including consigned goods. What is the number of units to be reported as Entity B's inventory at December 31, 2017?
Answer: 300 units (500 units on hand - 200 units of consigned goods)