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 acquire the inventory and prepare it for sale. This includes freight costs, sales and excise taxes, special material added to the item, and labour costs to add the special material. The interest on debt used to purchase the item is not an inventoriable cost. The payment terms of 3/10, n/30 do not affect the inventoriable cost. Therefore, the proper inventoriable cost for this item of inventory is $90,000 + $2,000 + $800 + $900 + $400 = $94,100.

The Following Costs Were Associated with the Acquisition of an Inventory