Composite, Inc. manufactures modular homes. Due to lack of storage space for raw material inventories, Composite implemented

Fantastic news! We've Found the answer you've been seeking!

Question:

Composite, Inc. manufactures modular homes. Due to lack of storage space for raw material inventories, Composite implemented a just-in-time inventory process in early 2006. Composite contracts with qualified vendors to be sole suppliers for a given raw material. In return, the vendors guarantee performance in accordance with Composite’s purchase order.

On Friday, November 2, 2008, Composite placed a purchase order with Mogul Chemical Company for plastic resins. Composite’s purchase order specifically states that all material is shipped so that Composite takes title to the goods when they are received. Delivery is to be made at 6:00 a.m. on the designated delivery date. Designated delivery date, number of pounds, and selling price per pound are:

Delivery Date	Pounds	Selling Price per Pound
Friday, November 30, 2008	75,000	$1.00
Friday, December 7, 2008	80,000	1.00
Friday, December 14, 2008	60,000	1.10
Friday, December 21, 2008	50,000	1.20
Friday, January 4, 2009	50,000	1.20

In December, Mogul Chemical experienced a slowdown in sales and decided to produce Composite’s January 2009 order over the Christmas holidays. After completing the production on December 29, the material was promptly loaded on a staged trailer, which was immediately locked and sealed. An invoice and a bill of lading were prepared. The invoice was then sent to Composite on a “bill and hold” basis.

Upon receiving the invoice, Composite contacted Mogul and was told that the material was invoiced because Mogul wanted to include the sale in the quarter ended December 31, 2008. However, actual delivery would take place according to the purchase order terms. Composite accepted the explanation.

Required:

1. Determine the sales revenue that Mogul should recognize on transactions with Composite for the quarter ended December 31, 2008.

2. What would Mogul’s justification be for including the production on December 29 in its December sales?

3. Should Mogul include the December 29 production in its December sales? Why or why not?