CONCEPTS OF INVOICE PRICE

Sometimes, the consignor does not want the Consignee to know the actual cost of goods sent to him. Therefore, consignee the goods at a price other than the cost price. Such price would generally be higher than the cost. It is called the invoice price. In other words, the invoice price is equal to the cost price plus a certain amount of profit.




Apart from the intention of not revealing the cost of goods to the Consignee there are a number of other reasons why the Consignor Consignees the goods at invoice price. These are:

i)     The Consignee will not able to assess the profit earned on consignment and therefore may not demand a higher commission.

ii)     If the Consignee know about the actual cost of goods, he may resort to some dishonest practices such as buying goods for himself at a lower price and then selling them at a higher price in the market.

iii)    It would give a fair idea to the Consignee of the minimum price at which he is to sell the goods.

You should note that invoice price is not the same thing as selling price. The invoice price is the price at which the Consignor sends the goods to the Consignee, whereas the selling price is the price at which the Consignee sells the goods to the customers. Let us take an example in order to clearly understand the difference between the three prices i.e., the cost price, the invoice price and the selling price. Suppose, Gopal consigns goods worth Rs. 15,000 to his agent Ashok at an invoice price of Rs. 18,000. Ashok sells the goods at Rs. 20,000. In this example, the cost price (CP) of the goods is Rs. 15,000, the invoice price (IP) of the goods is Rs. 18,000, and the selling price (SP) of the goods Rs, 20,000.

You will observe that the IP is higher than CP whereas SP is higher than the CP as well as the IP, and that the SP and the IP are not the same. If, however, the Consignor directs the Consignee to sell the goods at invoice price itself, then the SP and the IP will be the same.

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