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Commission

Commission is defined as the remuneration payable by consignor to consignee for the services rendered by the consignee. Such commission is paid in lieu of services rendered by the consignee in the form of selling the goods. Theoretically, there are three types of commission:

  1. Ordinary commission: Ordinary commission is the fixed % of commission paid by the consignor to the consignee, calculated on the total sales made by the consignee. This is the most common form of commission.
  • Del-credere commission: Del-credere commission is an extra commission paid by the consignor to the consignee to cover the risk of bad debts, if any, arising out of credit sale made by the consignee.
  • Over-riding commission: Over-riding commission is an extra commission paid by the consignor to the consignee for the extra efforts made by the consignee. The extra efforts can be by way of promoting sales at a higher price than specified or selling more quantities than expected.

Points to remember while solving practical problems on commission

  • Commission should always be calculated on the quantity of goods sold by the consignee and not on the quantity goods received by the consignee
  • Commission should always be calculated on the basis of actual sale price and not on the basis of pro-forma invoice price or cost price
  • Unless specifically given, Del-credere commission should also be calculated on total sales made by the consignee and not only on credit sales
  • All the commission should be calculated on the actual sale proceeds unless specifically given

Illustration 2

A of Bangalore sends out 250 units of goods costing ₹ 1,000 each to B of Chennai.The goods were to be sold so as to yield a gross profit of 20% on sales. Mr. Y sold 150 units @ ₹ 1,420 per unit on credit and 75 units @ ₹ 1,400 each, for cash. Calculate the commission due to Mr. B in each of the following alternative cases:

  1. If Mr B is entitled to a commission of ₹ 50 per unit
  2. If Mr B is entitled to an ordinary commission of 5%
  3. If Mr B is entitled to an ordinary commission of 5% and del-credere commission of 2%
  4. If Mr B is entitled to an ordinary commission of 5% and a del-credere commission of 2% on credit sales
  5. If Mr B is entitled to an ordinary commission of 5%, del-credere commission of 2% and an overriding commission of 25% on any surplus realised above the specified selling price.
  6. If Mr B is entitled to an ordinary commission of ₹ 50 per unit, del-credere commission of 2% and an overriding commission of 25% on any surplus realised above the specified selling price.
  7. If Mr B is entitled to an ordinary commission of ₹ 50 per unit plus one fifth of gross sale proceeds less total commission thereon exceeded a sum calculated at specified selling price above the specified selling price.





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