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units of product A $3,750
Freight-in 175
Cost of materials and labor incurred to bring product A to saleable condition900
Insurance cost during transit of purchased goods 100
Total $4,925
What amount should Den record as the cost of inventory as a result of this purchase?
a. $3,925
b. $4,650
c. $4,825
d. $4,925
The answer is d. Because
Inward transportation costs shall form the part of the cost of procurement of materials which are to be identified for proper allocation/ apportionment to the materials / products.
Whereas inward transportation cost comprises of the cost of freight, cartage, transit insurance and cost of operating fleet and other incidental charges whether incurred internally or paid to an outside agency for transportation of goods but does not include detention and demurrage charges.
The Inventory cost should be taken after considering all the costs incurred to bring it upto saleable condition, thus 4,925/- seems to be the correct value.
Answer is D (Full Costs) $4,925
The Den Should record $3,925 as a cost of inventory
