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BUS 251Ch 7

Inventory, layer by layer.

Ten short steps, from what goes into inventory cost and who owns goods in transit to FIFO and weighted-average records, lower of cost or NRV, counting errors and turnover. Then practise with worked solutions.

Part 1 · What inventory is · Step 1 of 10

Inventory costs everything it takes to get the goods ready to sell

Invoice price: 50 boards at $240
$12,000
Freight-in: trucking the boards to our store
$450
Import duties paid at the border
$750
Discount for paying the invoice early
−$240
Two damaged boards sent back to the supplier
−$480
Freight-out: delivering boards to customers
$300
Warehouse rent after the boards arrive
$500
Advertising the new boards
$800
Commissions paid to sales staff
$600
Inventory is recorded at cost: the purchase price plus every cost needed to bring the goods to the store and make them ready to sell, such as freight-in and import duties. Discounts and returns come off. Costs of selling or storing the goods afterwards are expenses of the period.
Try it: Sort every cost on Summit's order of 50 boards into inventory or expense. Watch the cost per board settle on the right number.
Your inventory cost
$0
Boards kept
48
Cost per board
$0
Start with the invoice price. For each cost ask: was it needed to get the boards onto the shelf, ready to sell?
Cost = Purchase price + Freight-in + Duties − Discounts − Returns
Every cost of getting the goods to the store and ready for sale.
Freight-out, storage, advertising and commissions are not inventory
They come after the goods are ready for sale, so they are expenses of the period.
Merchandise inventory vs raw materials, work in process, finished goods
A retailer holds one kind. A manufacturer holds three stages; the costing rules are the same.
Practise

Practise like it is the midterm

Answer first, then check. Fresh numbers writes a new question of the same type every time: new cost layers, new records, new errors.

Score
0 / 0
Inventory costQuestion 1 of 19
A clothing store imports a shipment of jackets. Which cost is not part of the cost of the jackets in inventory?

Midterm coming up and journal entries still feel shaky?

Bring your practice problems. We work through them together until every type feels routine.

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