Cey CorpEntered into a Contract to Sell Parts to Deck,Ltd

question 21

Multiple Choice

Cey Corp.entered into a contract to sell parts to Deck,Ltd.The contract provided that the goods would be shipped "FOB Cey's warehouse." Cey shipped parts different from those specified in the contract.Deck rejected the parts.A few hours after Deck informed Cey that the parts were rejected,they were destroyed by fire in Deck's warehouse.Cey believed that the parts were conforming to the contract.Which of the following statements is correct?

• A) Regardless of whether the parts were conforming,Deck will bear the loss because the contract was a shipment contract.
• B) If the parts were nonconforming,Deck had the right to reject them,but the risk of loss remains with Deck until Cey takes possession of the parts.
• C) If the parts were conforming,risk of loss does not pass to Deck until a reasonable period of time after they are delivered to Deck.
• D) If the parts were nonconforming,Cey will bear the risk of loss,even though the contract was a shipment contract.

---

Definitions:

Net Operating Income

The revenue from a company's primary business operations minus operating expenses, excluding taxes and interest.

Units Sold

The quantity of product units that have been sold during a specific period.

Break-even Point

The point at which total costs and total revenues are equal, meaning the business is neither making a profit nor suffering a loss.

Variable Expenses

Costs that change in proportion to the level of activity or volume of production in a business.