Explain if a retailer's inventory cost should include freight-in on the merchandise purchased with terms FOB shipping point

Marketing Dec 21, 2020

Explain if a retailer's inventory cost should include freight-in on the merchandise purchased with terms FOB shipping point.

Expert Solution

Retailers freight in should be included in the inventory cost because it is treated as capitalizable in the inventory. Inventories purchased by the entity with a corresponding freight that the entity paid, for example: FOB shipping point, must be added to the total purchase cost of the entity. However, it is not the case regarding freight out or the freight cost incurred in disposing a product which should be treated as a selling expense.

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