2. Required For each of the following events, determine the amount of freight pa

Question

2. Required For each of the following events, determine the amount of freight paid by Tom's Part House. Also indicate whether the freight cost would be classified as a product or period (selling and administrative) cost. (Select "NA" if there is no effect on the "Classification".) a. Purchased inventory with freight costs of $500. The goods were shipped FOB shipping point. b. Sold merchandise to a customer. Freight costs were $800. The goods were shipped FOB shipping point. c. Purchased merchandise inventory with freight costs of $1,400. The merchandise was shipped FOB destination d. Shipped merchandise to customers, freight terms FOB destination. The freight costs were $300. EventFreight Freight . , classification Costs Paid a. b. C. d.

Explanation / Answer

a.

a. Product cost as it forms part of goods purchased.

b. As terms were FOB Shipping point, therefore freight will be paid by the buyer.

c. As terms were FOB destination on purchase, therefore freight is to be incurred by the seller.

d. As terms were FOB Destination on sales, therefore cost will be incurred by the seller of the goods. It is a selling expense and hence it is a period cost.

EVENT Freight Cost Paid Classification a. $550 Product Cost b. NA NA c. NA NA d. $300 Period Cost

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