In determining the cost of inventory, the cost of purchase includes purchase price, import duties and other taxes that are not recoverable from the authorities. The trade discounts are to be deducted in arriving at the cost. Transportation costs are also added to the cost of the inventories.

Other costs are included, to the extent they are incurred in bringing the inventories to the present location and condition. Storage costs are not included in the cost of the inventories, unless they are necessary in the production process.

Cost of the inventories purchased

Total cost of 100 units of inventories = $107 x 100 = $10,700

Note: It is assumed that the storage costs are not necessery in the production process and hence not included in the inventory cost.