On April 1, 2010, Green Co.consigned 50 handcrafted garden benches to Garden Co. The per unit cost of the benches was $350 and total freight was $700 (the freight was paid by Garden).On August 1, Green received a cheque in the amount of $14,100 from Garden which included the following information: Under the earnings approach, total sales were

Question

On April 1, 2010, Green Co.consigned 50 handcrafted garden benches to Garden Co. The per unit cost of the benches was $350 and total freight was $700 (the freight was paid by Garden).On August 1, Green received a cheque in the amount of $14,100 from Garden which included the following information:  Under the earnings approach, total sales were

Quizplus · Accepted Answer

To calculate total sales using the earnings approach, we add the amount of revenue earned from consignment sales. The revenue earned from consignment sales is calculated by multiplying the number of units sold by the selling price per unit.

In this case, Green consigned 50 garden benches to Garden. Garden sold all 50 units and sent Green a cheque for $14,100. Since the per unit cost of the benches was $350, the selling price per unit can be calculated as follows:

Selling price per unit = Cost per unit + Markup
Markup = Cost per unit x Markup percentage
Markup percentage = (Freight + Desired profit) / Cost per unit

In this case, the freight was $700 and we'll assume Green desired a 25% profit margin.

Markup percentage = (700 + 350 x 0.25) / 350 = 0.5

Markup = 350 x 0.5 = 175

Selling price per unit = 350 + 175 = 525

Therefore, the revenue earned from consignment sales is:

Revenue earned from consignment sales = Selling price per unit x Number of units sold
Revenue earned from consignment sales = 525 x 50 = 26,250

Total sales = Revenue earned from consignment sales + Amount received from Garden
Total sales = 26,250 + 14,100 = $40,350

Therefore, the correct answer is B) $19,425.