QS 5-11 Inventory costs L.O. C2 A car dealer acquires a used car for $3,000, ter
ID: 2352570 • Letter: Q
Question
QS 5-11 Inventory costs L.O. C2
A car dealer acquires a used car for $3,000, terms FOB shipping point. Additional costs in obtaining and offering the car for sale include $150 for transportation-in, $200 for import duties, $50 for insurance during shipment, $25 for advertising, and $250 for sales staff salaries. For computing inventory, what cost is assigned to the used car? (Omit the "$" sign in your response.)
A car dealer acquires a used car for $3,000, terms FOB shipping point. Additional costs in obtaining and offering the car for sale include $150 for transportation-in, $200 for import duties, $50 for insurance during shipment, $25 for advertising, and $250 for sales staff salaries. For computing inventory, what cost is assigned to the used car? (Omit the "$" sign in your response.)
Explanation / Answer
Measurement of Inventories Cost should include all: [IAS 2.10] * costs of purchase (including taxes, transport, and handling) net of trade discounts received * costs of conversion (including fixed and variable manufacturing overheads) and * other costs incurred in bringing the inventories to their present location and condition Inventory cost should not include: [IAS 2.16-2.18] * abnormal waste * storage costs * administrative overheads unrelated to production * selling costs * foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency * interest cost when inventories are purchased with deferred settlement terms. According to Incoterms, on FOB terms, Buyer is responsible for: 1. Pay for the goods $14,000 (Cost) 2. Carry out IMPORT formalities $900 (Cost) 3. No obligation for Insurance, but if any it should be borne by the buyer $300. This is a bit tricky but I say this is a normal Cost/ business practice to bring the goods to the buyer location. 4. Take delivery of the goods $250 (Cost) 5. $150 & $1,250 is G&A cost Inventoried cost for the car is $14,000 + $900 + $300 + $250
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