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Homework answers / question archive / Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point
Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December. Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations. Dobbs ships the goods during December.
a. Under Dobbs' FOB policy, when should the company record a sale?
b. Provide feedback on Dobbs' manner of deciding when to ship goods to customers and record the sales revenue? Give reason.
a. Under FOB Shipping Point, the ownership of the goods in transit will be transferred to the buyer upon shipment. Therefore, Dobbs will record the sales upon shipment.
b. These strategy is good in reaching the company's target profit, as well as pay taxes that are acceptable to maintain company's cash. The only downfall of these is that the customer might switch to another supplier resulting to order cancellations if they badly needed the goods to be shipped before the end of the accounting period. The customers should not be let out to wait. It will result to the company having a bad reputation.
