Question

Which of the following costs are included in merchandise inventory?

1) Direct labor costs
2) Freight-in costs
3) Administrative expenses
4) Sales commissions

Answer 1

Freight-in costs are included in merchandise inventory as they are necessary to bring merchandise to the selling location. Other costs like direct labor, administrative expenses, and sales commissions are not included as they don't directly relate to acquiring or maintaining inventory.

Step-by-step explanation:

When considering which of the following costs are included in merchandise inventory, it's important to understand that merchandise inventory costs encompass all amounts incurred in bringing the inventory to its current location and condition. Among the options provided:

• Direct labor costs are generally not included in merchandise inventory as they pertain to production, not reselling of purchased goods.
• Freight-in costs are included in inventory costs as they are necessary to bring merchandise to the selling location.
• Administrative expenses are not included as they relate to the overall operation of the business and not specifically to inventory.
• Sales commissions are not included because they are associated with selling the inventory, not acquiring or handling it.

Therefore, the correct answer would be that freight-in costs are included in merchandise inventory.