Question

Q 6.34: Arnett Industries is a merchandising company with $82,600 in merchandise inventory. Arnett also has the following shipments in transit: Shipment 1 = $6,400 in goods FOB destination on the way from a supplier Shipment 2 = $6,600 in goods FOB destination to a customer Shipment 3 = $5,200 in goods FOB shipping point on the way from a supplier Shipment 4 = $4,300 FOB shipping point on the way to a customer Which shipments does Arnett need to include in their inventory?

Answer 1

Arnett should include shipments 2 and 3 in their inventory

Step-by-step explanation:

merchandise inventory: $82,600

1. shipment 1: $6,400 FOB destination NOT INCLUDED IN INVENTORY
2. shipment 2: $6,600 FOB destination to a customer ⇒ INCLUDED IN INVENTORY
3. shipment 3: $5,200 FOB shipping point ⇒ INCLUDED IN INVENTORY
4. shipment 4: $4,300 FOB shipping point to a customer NOT INCLUDED IN INVENTORY

Arnett should include shipments 2 and 3 in their inventory, so their total inventory should be $82,600 + $6,600 + $5,200 = $94,400

FOB destination means that the title of the goods belongs to the seller until the shipment reaches the customer's warehouse. So shipment 2 still belongs to Arnett until it reaches its customer's warehouse.

FOB shipping point means that the title of the goods belongs to the buyer immediately after the goods left the seller's warehouse. So shipment 3 belongs to Arnett as soon as it left the supplier's warehouse.