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A retailer purchased its inventories at $100 per unit
A retailer purchased its inventories at $100 per unit.
The import duties were $7 per unit.
The transportation costs were $1 per unit.
The retailer purchased 100 units and a bulk discount of 1% was given.
The inventories purchased were held in the warehouse and the storage costs were $500 in total.
What is the cost of the inventories purchased?
Expert Solution
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
| Purchase price | $100 |
| Import duties | $7 |
| Transportation costs | $1 |
| Less: Discount ($100 x 1%) | $1 |
| Total cost | $107 |
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.
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