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Ending Inventory Costs

Sandy Chen owns a small specialty store, named Chen's Chattel, whose year-end is June 30. A physical inventory taken on June 30 reveals the following:

Cost of merchandise on the showroom floor and in the warehouse $38,400 Goods held on consignment (consignor is National Manufacturer) 6,400 Goods that Chens Chattel, as the consignor, has for sale at the location of the Grand Avenue Vista 4,600 Sales invoices indicate that merchandise was shipped on June 29, terms FOB shipping point, delivered at buyers 3800 receiving dock on July 3 Sales invoices indicate that merchandise was shipped on June 25, terms FOB destination, delivered at buyers receiving dock on July 5 3,100
Determine the total amount that should be included in Chen’s Chattel’s year-end inventory.
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Answer #1

Chens Chattel specialty store owns as of June 30 tal amount that should be included in Chens Chattels year-end inventory: Amount Cost of merchandise on the showroom floor and in the warehouse S38,400 Less: Goods held on consignment (consignor is National Manufacturer) ($6,400 Refer Point 1 below Add: Goods that Chens Chattel, as the consignor, has for sale at the location of the Grand Avenue $4,600 Refer Point 2 below Sales invoices indicate that merchandise was shipped on June 25, terms FOB destination, delivered at buyers receiving dock on July 5 Add: $3.100 Refer Point 3 below Ending Inventory Costs S39,700

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1. Consigner is the owner of the goods until the sale of the goods on consignment. In this case, National Manufacturer, being the consigner of the goods, is the owner of the goods. So, cost of these goods should not be included in the inventory of the Chens Chattel specialty store. 2. Consigner is the owner of the goods until the sale of the goods on consignment. In this case, Chens Chattel specialty store, being the consigner of the goods, is the owner of the goods. So, cost of these goods should be included in the inventory of the Chens Chattel specialty store. 3. FOB Destination Point If a shipment is designated with the term FOB destination point, until and unless the goods reaches the buyers warehouse or dock, title/Ownership to the goods will not be transferred to the buyer. In other words, ownership on the goods being shipped on fob destination basis will be transferred to the buyer as soon as the shipment of goods reaches the buyers warehouse or dock. In this case, until July 5 (date of delivery), Chens Chattel specialty store is the owner of the goods. So, cost of these goods should be included in the inventory of the Chens Chattel specialty store. Note- Reason for excluding the cost of merchandise that was shipped on June 29: FOB shipping point If a shipment is designated with the term FOB shipping point, then as soon as the goods leaves the supplier warehouse or dock (or the shipping point), title to the goods is said to be transferred to the buyer. In other words, ownership on the goods being shipped will be transferred to the buyer as soon as the shipment of goods leaves the suppliers warehouse or dock (shipping point). In this case, merchandise leaves the Chens Chattel specialty store (shipping point) before June 30. So, cost of these goods should be ignored as the same is not included in the cost of merchandise on the showroom floor and in the warehouse.

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