Posted: July 7th, 2016

Do you approve or disapprove of Wilson’s means of deciding when to ship goods to customers?

Suppose the following two proposals were being considered. Find the Present Value of the proposed project. Select the project you would choose. Explain what other considerations you think are important when choosing one project over another.

Suppose the first project expects to receive $25,000 in 110 days, and the opportunity cost of capital, i, annually is 6%, or 0.06.

From the second project, the company expects to receive $45,000 in 150 days and the opportunity cost of capital, i, annually is 5%, or 0.05.

Present calculations, explanation, and any additional considerations in 200 words.
Wilson Company makes all sales 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, Kathy Wilson, the owner, decides when to ship the goods. If profits are already at an acceptable level, Wilson’s delays shipment until January. If profits are lagging behind expectations, Wilson’s ships the goods during December.

Requirements:

1.Under Wilson’s FOB policy, when should the company record a sale?
2. Do you approve or disapprove of Wilson’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 Wilson’s practice.)