Free on Board
Lesson:
The phrase Free on Board (often abbreviated FOB or F.O.B.) is an important concept in the world of inventory management.
It is used to specify the point at which an item's ownership is transferred from seller to buyer.
Being able to clearly specify this point is critical because it will determine who is responsible, should the item become damaged or stolen.
Fortunately, identifying this point is very easy.
An item can either be labeled as:
- FOB origin - the item's ownership is transferred when it is shipped (the ownership changes at the origin)
- FOB destination - the item's ownership is transferred when it arrives (the ownership changes at the destination)
It is important to note that ownership only transfers when an item is either picked up, or delivered. A vendor that puts an item on a loading dock, for instance, hasn't yet transferred the item's ownership. This is because the item has not yet been picked up for transport.
Ultra Biz had agreed to purchase some blankets from Michael Jones, inc..
Here's what you know:
- The contract is known to be FOB destination.
- The blankets were accidentally thrown out by the buyer.
Who is responsible for the loss?
Answer:
- Ultra Biz is responsible
Explanation:
- Look at the shipping type. It's FOB destination, which means that the blankets must be delivered before liability transfers to the buyer.
- The blankets had been received, so Ultra Biz (the buyer) is liable no matter what type of contract is being used.