Question

The following costs pertain to Pete Co.’s purchase of inventory in 2014, Pete Co.’s first year of operations:

1200 units of product X 12,500
Insurance cost during transit of purchased goods 200
Freight-in 350
Cost of labor to bring product X to saleable condition 3,200
Total 16,250

None of the inventory was sold during 2014. What will be the ending balance in Pete Co.’s inventory

A. 16,250
B. 13,050
C. 15,700
D. 12,500

Answer 1

Option (a) is correct.

Step-by-step explanation:

Cost of ending inventory includes purchase cost, Insurance cost during transit, Freight in charges and cost of conversion (labor cost).

Ending balance in Pete Co.’s inventory:

= Purchase cost + Insurance cost during transit + Freight in + cost of conversion (labor cost)

= $12,500 + $200 + $350 + $3,200

= $16,250

Therefore, the the ending balance in Pete Co.’s inventory is $16,250.