Question

Walberg Associates, antique dealers, purchased the contents of an estate for $75,000. Terms of the purchase were FOB shipping point, and the cost of transporting the goods to Walberg Associates’s warehouse was $2,400. Walberg Associates insured the shipment at a cost of $300. Prior to putting the goods up for sale, they cleaned and refurbished them at a cost of $980. Determine the cost of the inventory acquired from the estate.

Answer 1

Inventory means the goods held at hand at the year-end by a company. Inventory cost for a company can be computed by the perpetual or periodic inventory system. The inventory cost includes the cost of transportation-in, the insurance paid on the shipment, and any other ancillary cost incurred.

FOB shipping point is a kind of shipping term agreed between a buyer and seller where ownership of the goods is transferred to the buyer when goods depart from seller’s place of business. Costs like freight and insurance are paid by buyer and the risk of the goods under transit is also owned by buyer.

Incidental costs are incurred by a buyer on the inventories purchased. Incidental cost is incurred to make the inventories sellable in the market and includes costs like freight, insurance, storage, import duties, etc.

As per accounting principles, incidental costs should be assigned to inventory costs.

Determine the cost of inventory in the following manner:

Therefore, the cost of inventory is .