Flaxco purchases inventory from overseas and incurs the following costs: the cost of the merchandise is $50,000, credit terms are 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Flaxco paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.
A) $50,000
B) $53,000
C) $52,000
D) $51,500
E) $53,200

Question

Quizplus · Accepted Answer

The cost of the inventory is the cost of the merchandise plus the costs incurred to get the merchandise ready for sale. The costs incurred to get the merchandise ready for sale include the freight charges, insurance during transit, and import duties. The cost of the advertising and sales commissions are not included in the cost of the inventory because these costs are incurred after the merchandise is ready for sale. Therefore, the cost that should be assigned to the inventory is $50,000 + $1,500 + $500 + $1,000 = $53,000.

Flaxco Purchases Inventory from Overseas and Incurs the Following Costs