Question

The following costs pertain to Pete Co.’s purchase of inventory in year 4, 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 year 4. What will be the ending balance in Pete Co.’s inventory?

Answer 1

$16,250

Step-by-step explanation:

The accounting standard for Inventory under IFRS IAS 2 requires that inventory be recognized at cost which includes all the cost incurred to bring the item of inventory to a state or place where the item of inventory becomes available for sale.

These costs includes cost of purchase, freight, Insurance cost during transit etc. Hence ending balance of inventory

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

= $16,250

Answer 2

The inventory ending balance is $16,250

Step-by-step explanation:

In this question, we are asked to calculate the ending balance in Pete Co.’s inventory.

To calculate this , we employ the use of a mathematical approach.

Mathematically, to get the balance;

We add purchase cost to insurance cost during transit to freight in to cost of conversion(labor cost)

This can be represented as;

Inventory balance at the end = Purchase cost + Insurance cost during transit + freight in + labor cost

We identify their values as;

Purchase cost = $12,500

Insurance cost during transit = $200

Freight in = $350

Cost of labor = $3,200

This; ending balance = 12,500 + 200 + 350 + 3,200 = $16,250