The following costs were associated with the acquisition of an inventory item purchased by a firm (the item is to be resold by the firm) : $\begin{array}{l|l}\hline\text { Freight costs, FOB shipping point } & \$ 2,000 \\\hline \text { Sales and excise taxes } & 800 \\\hline \text { Interest on debt used to purchase item } & 600 \\\hline \text { Special material added to item by firm } & 900 \\\hline \text { Labour costs to add the special material } & 400 \\\hline\text { Gross invoice price } & 90,000\\\hline\end{array}$ Terms: 3/10,n/30 Payment was made on the 12^th day after purchase
What is the proper inventoriable cost for this item of inventory?

Question

The following costs were associated with the acquisition of an inventory item purchased by a firm (the item is to be resold by the firm) :

\begin{array}{l|l}\hline\text { Freight costs, FOB shipping point } & \$ 2,000 \\\hline \text { Sales and excise taxes } & 800 \\\hline \text { Interest on debt used to purchase item } & 600 \\\hline \text { Special material added to item by firm } & 900 \\\hline \text { Labour costs to add the special material } & 400 \\\hline\text { Gross invoice price } & 90,000\\\hline\end{array}

Terms: 3/10,n/30 Payment was made on the 12^th day after purchase
What is the proper inventoriable cost for this item of inventory?

Quizplus · Accepted Answer

The proper inventoriable cost is the gross invoice price plus all costs necessary to get the inventory ready for sale. This includes freight costs, sales and excise taxes, and the cost of any special material added to the item. In this case, the proper inventoriable cost is $90,000 + $2,000 + $800 + $900 = $93,700. Since payment was made on the 12th day after purchase, the firm is not eligible for the 3% discount. Therefore, the proper inventoriable cost is $93,700.

The Following Costs Were Associated with the Acquisition of an Inventory