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Hi
Could you just help me understand the below please.
A company which gives its sales personnel 5% of sales price as commission has this inventory at the end of the year.
Quantity Cost Per unit estimated sale price
Beads 2,000 $1.50 $1.53
Calculate the inventory amount that needs to be recorded in the SOFP..
I know how to calculate this.. so dont need any help with calculation. but I wanted to understand:
when calculating the net realisable value= sale price- any running costs/ selling distribution costs.. how would one classify the 5% commission the company gives to its sales personnel? I would
like to understand why we reduce sale price by the 5%…is the 5% commission is some sort of overhead.. what type of costs is this?thanks!!
The commission is a selling cost and so it is subtracted in calculating the net realisable value.
ahh ok! So any costs affecting sale price are selling costs? What specifically makes the 5% commission a selling cost? Is it just because it is a factor that affects sale price? Sorry I just want to be clear on what selling costs are.. so i can identify them in another question.
Merci 😉
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