Wandby Inc. (Wandby) makes plastic lawn furniture. Many of the company's products are generic styles that are sold to distributors and retailers across North America. The company also designs and produces furniture to customers' specifications. In 2017, Wandby en tered into a number of arrangements with customers whereby orders were produced but not shipped to customers as of the end of the year. Each arrangement is a bit different and management isn't sure when revenue should be recognized in each case. Provide a report to management explaining when you think revenue should be recognized for each arrangement (whether revenue should be recognized on production, delivery, or some other point). Wandby's year-end is December 31.
a. Wandby received a large order from a regular customer for a line of custom furni ture it has purchased for many years. The furniture is needed to restock the cus tomer's distribution centre in advance of spring sales. Normally, the customer wants the order delivered by the end of December but this year asked Wandby to delay shipment pending completion of renovations of the distribution centre. The customer estimates delivery will occur in early February. Wandy agreed to the arrangement and completed production of the furniture on December 19. The furniture has been packed and prepared for shipping with the customer's name and address, and has been set aside in a secure area of the warehouse. The customer agreed to pay for the goods within 30 days of the completion of production and an invoice has been mailed.
b. To use excess capacity on one of its production lines, Wandby contacted an established customer about pre-ordering furniture it has been ordering for a number of years. The customer agrees, but at the end of the year it isn't ready to take delivery because it already has an adequate supply of the product. The goods are to be shipped sometime in the next six to eight months, if and when they are needed. The customer will pay the market price at the time. Wandby has completed production of the prod ucts and they have been packaged and are awaiting delivery to the customer.
c. In October, Wandby received a firm order for a standard line of furniture. The customer paid a 30 percent deposit on the final price to ensure delivery. The customer wants the products delivered in mid-February. Since the furniture is a standard product, it will produce the order close to the delivery date, probably in late January or early February.