Question

Flaxco purchases inventory from overseas and incurs the following costs: the cost of the merchandise is $50,000, credit terms are 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Flaxco paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.

$50,000

$53,000

$52,000

$51,500

$53,200

Answer 1

$52,000

Step-by-step explanation:

The computation of the cost of inventory is shown below:

= Cost of merchandise + freight charges + insurance during transit + import duties - discount

= $50,000 + $1,500 + $500 + $1,000 - $1,000

= $52,000

The discount is computed below:

= Cost of merchandise × given percentage

= $50,000 × 2%

= $1,000

The advertising and the sales commission should not be considered. Hence, ignored it