Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 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. Avanti 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.

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andromache andromache · Answer 1 · 2019-07-22T14:46:43+02:00

Answer:

The cost that should be assigned to the inventory is $52,000

Explanation:

Given costs:

The merchandise cost = $50,000

Freight charges = $1,500

Insurance during transit = $500

Import duties = $1,000

Discount = 5000 × 2÷100 = $1000

Advertising cost = $1,200

Sales commissions = $5,000

After considering these cost we are able to compute the inventory cost.

Inventory cost = merchandise cost + Freight charges + Insurance during transit + Import duties - Discount

= $50,000 + $1,500 + $500 + $1,000 - $1000

= $52,000

Other costs would not be considered because it is related to the selling expense.

Thus, the cost that should be assigned to the inventory is $52,000.