Question

6) Explain clearly what advantage would accrue to the
head office envoicing its supplies to the branch at selling
price .
​

Answer 1

Answer:

The method dealt with so far established the total profit made at a branch and makes no distinction between profit due to retailing and that due to wholesaling. Suppose, the cost of an article is Rs 100, the wholesale price Rs 120 and the retail price Rs 125. If the article is sent to a branch and sold there, the profit revealed according to the above method will be Rs 25 (retail selling price minus the cost).

Explanation:

It is clear, however, that the profit made by opening the branch is only Rs 5; Rs 20 could have been earned by selling the goods on wholesale basis to others. For knowing the true profit at retail branches, the practice adopted sometimes is to charge the branch with wholesale price and then ascertain the profit. The head office trading account will then be credited with goods sent to branches at wholesale price and not at cost.

It must be remembered