Need math help with Frank's Furnace purchase

Jan 9th, 2016
Price: $5 USD

Question description

1)   Frank Dobbins (a homeowner) orders a furnace from ALPINE on Order #1.  The customer pays $1,000 - this is the retail price of the furnace.  The customer does not pay tax because they are out of state.  The product is advertised with "free shipping."  ALPINE has 3 of these furnaces in inventory with an average cost of $500 each.  A freight carrier (Carrier A) picks up the furnace from ALPINE's warehouse and signs for the shipment confirming that the product is in good condition. The freight carrier delivers the furnace to the customer.   The freight carrier charges $100 to deliver the furnace to the customer.  

Question 1A)  What expenses has Alpine accrued on this order (direct costs only)?  

Question 1B)  What is the gross profit? 

2)   The next day, Frank Dobbins contacts ALPINE to report damage to his furnace.  He signed the delivery receipt noting that his unit was damaged.  He says that he wants to return the furnace and receive a new furnace from ALPINE.  ALPINE schedules a pick-up of the furnace with the same freight carrier that delivered it.  The carrier (Carrier A) picks it up and delivers it back to the ALPINE warehouse, at a shipping cost of $100.  ALPINE estimates that 10 percent of the furnace is damaged, but that it can be resold as is with a damage allowance off the retail price.  ALPINE photographs the unit and places it online for sale as a scratch-n-dent unit for $900.  ALPINE ships Frank Dobbins a second furnace (ALPINE creates a second order to do so, Order# 2), but does not charge Frank Dobbins.  Alpine ships the replacement furnace with Carrier B for $110.  ALPINE's claims processor sees that she needs to file a damage claim for Frank Dobbin's returned furnace.  (Note that most freight carriers will not pay the shipping bills of other carriers.) 

Question 2A) What total amount should she file the claim for, and what specific costs does that include?

Question 2B)  Who does she file the claim with?

3)  Frank Dobbins received his second furnace.  He notices the unit is scratched, gets frustrated and refuses the furnace.  The carrier contacts ALPINE for disposition.  ALPINE asks that Carrier B returns the furnace to ALPINE free astray, meaning at no charge.  Carrier B complies and returns the furnace to ALPINE.  Frank Dobbins says he needs to cancel the order and buy his unit locally because he is too cold to wait for a third unit.  Alpine complies and cancels his order.  ALPINE receives Frank's second furnace back, and it has minor damage, estimated at 3 percent.  Alpine adds the product to its SND inventory.  

Question 3A)  By what amount would the account SND inventory account be increased or decreased?  (Note:  ALPINE records inventory at Lower of Cost or Market.)

Question 3B)  How much is Frank refunded?  

Question 3C) Should ALPINE file a second claim, and if so, with which carrier?

Question 3D)  If ALPINE filed a claim, what costs would the claim be filed for (please detail)?    

Questions 3E)  Does anything else need to occur to eliminate any negative financial impact on ALPINE for these two order exceptions? 

Tutor Answer

(Top Tutor) Daniel C.
School: University of Virginia

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