Schafer Bearing Company makes all sales of industrial bearings under terms of FOB shipping point. The company usually receives orders for sales approximately one week before shipping inventory to customers. For orders received late in December, Bob Schafer, the owner, decides when to ship the goods. If profits are already at an acceptable level, the company delays shipment until January. If profits are lagging behind expectations, the company ships the goods during December.
Required
1. Under Schafer Bearing Company’s FOB or CIF policy, when should the company record a sale?
2. Do you approve or disapprove of Schafer Bearing Company’s means of deciding when to ship goods to customers? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Schafer Bearing Company’s practice.)
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