7.01- Cost of Inventory Flashcards
What does cost of inventory include? 4 things
- warehousing costs
- insurance, repackaging, modifications
- freight-in paid by buyer
- transportation costs paid by seller
What should you not include in costs of inventory? 4 things
- idle factory expense
- excessive spoilage
- double freight
- rehandling costs
What is FOB shipping point?
- the title passes to the buyer when seller delivers goods
- included in buyer’s books at year end
What is FOB shipping point called on the exam?
Shipped
What is FOB destination?
- title passes to the buyer when the buyer receives the goods
- included in seller’s books until received by buyer
What is FOB destination point called on the exam?
received
Why does a consignment arrangement occur?
when a buyer is acquiring goods for resale but only wants to buy them when they have been able to arrange for resale
What happens in a consignment arrangement?
- consignor arranges for goods to go to the consignee but retains legal ownership
- consignor pays transportation costs-added to consignor’s inventory cost
Does the consignee ever own the goods?
nope, they purchase them when they are able to resell them
What are 2 characteristics of the consignor?
- includes inventory in balance sheet
- has ownership but not possession of the goods
With the consignor, what costs are considered inventory costs until sold? 5 things
- Cost of the goods
- freight paid on shipments to consignee
- warehousing costs
- advertising
- in-transit insurance
What are 3 characteristics of the consignee?
- items are not included in their inventory balance
- has possession but not ownership of goods
- when sold, sales price given to consignor minus reimbursable costs and commissions
What are the two systems for measuring inventory quantities?
- periodic
- perpetual
What is the periodic system?
inventory quantity is determined by a physical count, usually at year end
What is the perpetual system?
real-time count of inventory
