Question

A merchandising business paid $2,500 to purchase inventory and $50 to have the inventory delivered to its customers. Its product costs were $2,550.

a)True

b) False

Answer 1

b) False

Step-by-step explanation:

Given;

Cost of inventory = $2,500

Cost of delivery = $50

Total cost incurred = $2,500 + $50

= $2,550

Product cost is the cost incurred to bring the item of inventory to the entity purchasing the item of inventory.

This cost includes the purchase cost, freight costs, etc. However, the cost incurred in the delivery of the item of inventory to a customer is an element of the selling and distribution cost to be recognized as a part of the operating expense.

The product cost is recognized as part of the cost of goods sold. Hence, product costs was $2,500.