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
Question 1A) What
expenses has Alpine accrued on this order (direct costs only)?
Question 1B) What is
the gross profit?
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?
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?
3C) Should ALPINE file a second claim, and if so, with which
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?