(by Mohamed Hakim-CMA) How should the following costs affect a retailer's inventory? Freight-in / interest on inventory loan.

b. both will increase as the interest is on inventory loan which will be added as indirect expense. Freight in will be added in direct expense as freight inwards.

Freight-in (if any) is part of inventory cost because it is necessary to bring the inventory at required place.

As per my understanding, interest on inventory loan should not be included in inventory cost under normal circumstances.

However, if the inventory passes the criteria of being "qualifying asset", then, "net" interest will be included in inventory cost.

A "retailer's" inventory will probably not fall under qualifying asset category. Therefore, option a. is correct.